The Life Insurance Rule: How much money will your family need if your income stops?

It's important to have term life insurance if you have people who depend on you financially. If you unexpectedly pass away, your loved ones might struggle to cover their living expenses, debts, and future plans without your income. Term life insurance provides a one-time payment to help fill this financial gap and support their stability.

The Life Insurance Rule

So, how much money will your family need if your income stops? The life insurance rule recommends having life insurance coverage that is at least 10 times your current income. This amount should consider all your debts and loans. This rule helps determine the amount of income your family will need to cover their daily expenses if you are no longer there.

Also read: Latest claim settlement ratio of life insurance companies in India released in 2024


Say, if your annual income is Rs 5 lakh, you need Rs 5 crore of life cover so that your family does not face any financial difficulty and can continue with their current lifestyle, even in your absence.

Remembering that your income will change over time is important, so it's a good idea to review your life insurance coverage every few years. This is a crucial part of ensuring the financial security of your family in the event of your unexpected passing.

How to calculate minimum sum assured

To determine the minimum sum assured needed from a life insurance policy, you should start by calculating your annual income and the present value of your long-term and medium-term goals. Then, subtract your current liabilities from the minimum sum assured by the life insurance policy you are considering. If the total of your long-term and medium-term goals' present value and annual expenses equals the sum assured offered by the life insurance policy plus your current liabilities, then it is advisable to choose the insurance policy.

Tips to choose life insurance coverage

Choosing a life insurance policy is a critical life decision. However, it is not the only factor to consider while selecting life insurance. The following are some suggestions for choosing the best life insurance coverage, according to the Kotak Mahindra Life Insurance website:

Consider your budget

Term insurance offers high coverage at affordable premiums, but choose a plan you can comfortably maintain without straining your finances.

Compare different plans and providers

Do not settle for the first option. Research and compare quotes from different companies to find the best coverage at a competitive price.

Consider riders

Riders are optional add-ons that can enhance coverage, like disability income or accidental death benefits. Choose riders that complement your specific needs.

Buy term insurance plan online

Buying term insurance online offers convenience, choice, and transparency. You can research, compare, and purchase policies from the comfort of your home. When choosing a term insurance plan online, consider factors such as coverage amount, term length, and premium affordability.

Review your policy regularly

Always update your coverage as your needs and circumstances change. Also, cost-of-living adjustments should be considered to maintain adequate coverage.