How much cover is enough? A framework, not a guess
"How much life insurance do I need?" is a question most families answer with a feeling rather than a calculation. Ten lakhs feels like a lot. Fifty lakhs sounds generous. One crore seems excessive — until you divide it by fifteen years and realise it is less than fifty-six thousand a month.
There are multiple methods to calculate the right cover. The simplest framework — and the one we use at Dhansanchay as a starting point — has three components.
First, income replacement. How many years of the primary earner's income does the family need to replace? For a family with young children, fifteen to twenty years is typical. Multiply the annual income (minus personal expenses) by this number. This is the base.
Second, liabilities. Add up every outstanding loan — home loan, car loan, education loan, credit card debt. If the earner is not here, these liabilities do not disappear. The insurance must clear them so the family is not servicing debt from the income-replacement corpus.
Third, specific goals. Children's education. A daughter's or son's wedding. Ageing parents' medical needs. These are known future expenses that the family has been planning to fund from future earnings. If those earnings stop, the insurance must fund them instead.
Add these three together. Subtract existing cover and any assets that could be liquidated. The resulting number is the gap — and that is how much additional cover the family needs.
The number is almost always larger than people expect. That is normal. It does not mean you need to buy everything at once. It means you need to know the number — so that whatever you buy is sized to a real need, not to a marketing brochure or a tax-saving target.
We would rather a family have adequate term cover at a low premium than inadequate endowment cover at a high premium. The shield must be the right size. Everything else is secondary.
The families who compound quietly tend to protect the plan from both fear and euphoria. This is perspective, not a personalised recommendation. Decisions belong in conversation with someone who knows your full picture.