How much Life insurance coverage do you really need?


We all know life insurance is a ‘must’ for anyone who has financial dependents. But how much life insurance is really enough? Should it be your annual income or your total annual expenses? You would not want to leave your family with inadequate funds after your demise. Hence, one must ensure they are always sufficiently covered.


The most efficient way of determining the amount of cover one needs is ‘Need based analysis’. It’s the method used by most financial planners. It arrives at a figure after considering several factors such as your expenses, your life goals, your current financial position, etc. It even includes an amount required for the final rites as these can be very high and burdensome to accumulate in a period of distress.We at would like to help you understand how to arrive at an approximate figure of the cover you need through this technique so your family can be assured of a peaceful tomorrow.


To be as accurate as possible, need based analysis considers only the expenses of the family after the bread earners demise. Hence, this will exclude all personal costs of the individual such as premiums for insurance and others specifically pertaining to him/her. This figure is the family’s yearly expense.Considering the inflation for each year till the life expectancy of the spouse, and the average rate of return one can get over this period of time, you arrive at the total corpus of money that is required today in order to enable the spouse to maintain their current lifestyle till death.

In case of an unfortunate demise of an individual, the burden of repaying any existing liabilities lies on the remaining family members. Hence, it is very important to ensure your life cover includes the sum required to pay off any liabilities. Hence the total amount of outstanding liabilities should be added to the total corpus.

The next step is to consider one’s important life goals. These include children’s education, their marriage, etc. These have to be accumulated for as well. Hence, the total amount of money you wish to spend on each life goal should be added to the existing figure.

Finally, one must also provide for a certain sum of money to carry out his/her last rites. These payments can be very high and burdensome to accumulate in times of distress and hence must be added to the amount of cover needed. This is known as Final Expenses. It may also include any will execution fees, any documentation fees, etc. We then arrive at the total amount of money required by the family to sustain themselves for their remaining lifetime.

However, every individual does have a certain sum of money invested in order to secure their family’s future. This money will also be available to the family to use. Hence the total investment assets will be deducted for the amount of cover needed. This will include your Bank balance, equity portfolio, bonds, real estate investments, etc. It will exclude all personal assets such as home. You will also deduct any existing amount of life cover as this will also be received by the family in case of the individual’s death. This will help us arrive at the total amount of life cover needed by an individual in order to be sufficiently covered. The same can be acquired by buying a term insurance plan. This is the most cost-effective & efficient way to get the right cover!

As one can see, the amount of life insurance to be purchased is not a matter of choice. It includes analyzing several aspects of one’s life to arrive at an approximate figure. So calculate, and provide your family with the security they deserve. You may also consult a financial planner for more in-depth understanding.

Go ahead and be sufficiently covered!

By Shalmali Kulkarni.

The writer is working as a para-planner with



0 #2 Meena 2012-02-04 05:36
a very complex subject explained really well.

Good Job!!
0 #1 karan 2012-02-04 05:35
was asking my insurance agent about the same, thank you for the information !!

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