Two questions get answered badly in almost every Indian household. How much life cover do you need, and what kind. The first is usually settled with a rule of thumb; the second is usually settled by whoever is selling.
Imagine a parachute that also comes with a small picnic basket, for a bit extra. It is a worse parachute than a plain one, and a far worse picnic basket than a picnic basket. Nobody would buy it — except that it is sold as two things for the price of one.
That is an endowment policy or a ULIP. It provides less cover than a term plan for the money and worse returns than a mutual fund. Its only genuine advantage is that people who would not otherwise save are made to.
The number, properly derived
The right approach is human life value: the present value of the income your family would have to replace, plus what they would have to repay, plus what they would have to fund — minus what already exists.
- PV(income)
- Annual income discounted at the real return the payout would earn
- Loans
- Home loan, car loan, anything a family would inherit
- Future goals
- Education and marriage costs that do not disappear
- Liquid assets
- What they could actually access — not the house they live in
Example: ₹14 lakh a year for 26 years, discounted at a 2% real rate, is roughly ₹2.8 crore. Add ₹40 lakh of home loan and ₹30 lakh of education, subtract ₹12 lakh saved, and you need about ₹3.4 crore.
Enter your own figures. The discount rate is the return the payout would earn above inflation — 2% real is a conservative assumption for money a grieving family will not manage aggressively.
Why the cost gap is so large
| Product | Cover for ₹20,000/year | What the rest of your money does | Effective return |
|---|---|---|---|
| Term plan | ₹1.5–2 crore | Stays with you — invest it yourself | No return; it is insurance |
| Endowment policy | ₹4–6 lakh | Goes into a conservative pool with charges | Roughly 4–5% |
| ULIP | ₹10–20 lakh | Goes into funds, after mortality and admin charges | Market return minus 2–3% |
| Money-back policy | ₹4–6 lakh | Returned to you periodically, from your own premium | Roughly 4–5% |
Who does not need cover
- People with no dependants and no loans that anyone would inherit. Life cover replaces income for someone; with no someone, there is nothing to replace.
- Children. A policy on a child insures against the loss of an income the child does not earn. It is a savings product with a sad name.
- Retirees whose dependants are financially independent and whose loans are cleared — at which point the premium is better spent on health cover.
A relative recommends a policy that pays ₹8 lakh on death and returns your premiums with a bonus at maturity. What is the trade you are making?
Har khaandan mein ek insurance wale chacha hote hain jo "paisa wapas bhi milega" wali policy bech dete hain. Wapas milta hai — pandrah saal baad, bina badhe. Term plan lo: utne hi paise mein bees guna cover. Insurance aur investment ek saath lene mein dono kharab milte hain.
- Derive the cover from income to replace, plus loans and goals, minus assets.
- "Ten times income" ignores loans and inflation, and is usually low by half.
- Term plans cost a fraction of bundled products for many times the cover.
- Disclose everything on the form — non-disclosure is the main reason claims fail.
- No dependants and no loans means no need for life cover at all.
Mark it done to track your progress through the curriculum.
Common questions
Short, direct answers to what people ask about this topic.
- human life value meaning in insurance
- Human life value is a cover figure built from what a family would actually have to replace: the present value of the income the earner would have brought in over their remaining working years, plus loans the family would inherit and goals still to be funded, minus liquid assets and cover already in force. It replaces a rule of thumb with a number derived from the household’s own figures.
- is 10 times annual income enough term cover
- The ten-times rule is usually low, because it quietly assumes the family spends the payout down over ten years and it ignores outstanding loans and inflation entirely. For someone in their mid-thirties with a home loan and young children, a properly derived figure is often close to double what the rule produces. Treat it as a sanity check on the answer, not as the calculation.
- the amount an insurer pays out on a term policy is known as the
- Sum assured — the fixed benefit paid to the nominee if the life assured dies during the policy term. In a pure term plan the sum assured is the entire product: there is no maturity value, no bonus and no surrender value. That is precisely why the same premium buys many times more cover than a policy with a savings component bolted on.
- what happens if I did not disclose smoking on my term insurance form
- Non-disclosure of material facts is the most common reason a life insurance claim is rejected, and smoking is one of the specific things insurers ask about on the proposal form. The premium gap between smoker and non-smoker rates is small next to a claim that fails when the family most needs it. If a policy is already in force, the practical step is to inform the insurer and let them re-rate the premium and terms rather than leave the form wrong.
- how much term cover can 20000 a year buy
- A term plan is pure cover — the whole premium buys a death benefit, nothing comes back if you survive, and around ₹20,000 a year can buy ₹1.5–2 crore of cover for a healthy young adult. An endowment policy splits the same premium between a far smaller cover, a few lakh for that outlay, and a conservative savings pool that has historically returned roughly 4–5%. Keeping the two functions separate gives both more cover and a higher expected return for the same money.