General Insurance

How to Determine the Right Amount for Your Life Insurance Cover in 2022?


We all know that death is certain, and most people may not want to think about it too much. However, if you have family members who rely on you, it is critical that you have enough investments, such as life insurance. Life insurance can make it easier for those left behind to manage day-to-day living expenses, pay off mortgages or other debts, and cover other expenses.

When it comes to life insurance, many people are uncertain as to how much coverage they need. This article will talk about everything, such as what factors affect your coverage amount and how to calculate it.

What is life insurance?

In the event of your death, life insurance pays out money to one or more beneficiaries of your choice. Depending on the type of coverage, life insurance can pay for final expenses such as a funeral or unpaid debts, or it can provide funds to support dependents’ standard of living or future financial needs. In the end, life insurance gives you some peace of mind that your beneficiaries’ financial needs will be met (up to the policy limit, or death benefit) if you die.

Factors to Consider Before Selecting Life Insurance Cover

  1. Your Age

Your date of birth when you bought the coverage is very important. Adults between the ages of 25 and 35 need coverage equal to at least 18 times their yearly salary plus. However, those between the ages of 25 and 45 and 44 and 55 require coverage that is 15 times and 10 times their respective yearly incomes, in addition to having all outstanding loans paid in full. It is recommended to purchase the coverage when you are young and to select the tenure that is the longest.

  1. Your annual income

Evaluating your present financial situation is one of the crucial elements to consider while choosing life insurance coverage. The basic rule of thumb, which states that your life insurance coverage must be at least 15 to 20 times your current yearly income, is often recommended by consultants.

  1. Your financial liabilities or debt

Liabilities are an important factor when determining the insurance coverage for your life insurance policy. The life insurance coverage should be enough to cover all of your current and anticipated debts and financial liabilities. Since life insurance ensures that the policyholder’s family will get money in the event of their death, the coverage should be set up so that it enables the family members to settle their debts and live a life free from interference.

The benefit from your policy should be enough to pay off all of your current debts, such as credit card bills, mortgage payments, and car loans. Figure out how many other capital assets you have and set the amount of coverage you want to buy based on that.

  1. Your Financial Goals

The entire purpose of the life insurance plan is to provide for the family’s financial necessities following the death of the insured. Children’s schooling and marriage should at least be included in the coverage because they end up being significant household expenses in modern Indian society. Thus, life insurance cover must pay these costs in the event of the decedent’s death while taking inflation into account.

  1. Policy Tenure

Life insurance generally has annual premiums. Therefore, it is recommended to purchase a life insurance policy at a young age so you can get coverage for a longer time. Moreover, life insurance premiums are rather cheap when you purchase them at a young age.

Methods to Calculate How Much Life Cover You Need

  1. Human Life Value (HLV)

A figure that indicates the current value of anticipated future income, expenses, debts, and assets is known as the “Human Life Value” (HLV) or “Ideal Life Cover.” The HLV figure is typically obtained to determine how much capital would be needed to purchase term insurance to protect the lives of your dependents if you pass away.

Find out how much it would cost in today’s currency if your goal is to maintain your family’s current lifestyle in the future. Also, most insurance providers recommend the HLV method to calculate the coverage amount.

  1. Income Replacement

This calculation method assumes that life insurance will make up for the lost source of income. “Your insurance coverage = your current yearly salary x the number of years till retirement” is one of the simplest ways to determine your income replacement value.

For instance, if you are 40 years old, make 20 lakh rupees a year, and expect to retire at 60, the amount of insurance you’ll need is 4 crore, i.e., 15 lakh times 20.

  1. Expenses Replacement

In this method, people estimate their living costs, debt payments, and responsibilities like funding their children’s school and caring for financially dependent parents. The amount of coverage calculated from this will be the amount your family requires.

Your investments and life insurance must then be subtracted from the calculated amount. You can estimate how much coverage you need by subtracting investments and insurance from spending and goals.


You must consider all these factors before finalising a coverage amount for your life insurance. These factors should have given you a better understanding of your current goals and positions regarding supporting your family financially. It’s a good idea to periodically examine your term insurance needs because you can’t predict everything.

Moreover, research and apply only for the life insurance that suits you best. You can also visit our website to read more such blogs and learn about life insurance and finances. You can also check out the housing and personal loan sections if you plan to get one.