How much life cover do you actually need? Three ways to work it out

People spend weeks comparing plans and about four minutes deciding the sum assured. It should be the other way round.
Having too little cover is the more common problem, and the more painful one. A family that receives ₹50 lakh when it needed ₹1.5 crores does not get a third of the outcome. It gets a few years of breathing room. Then the same crisis arrives again, only now the savings are gone too.
Having too much cover has a cost as well. Premiums you struggle to pay are premiums you eventually stop paying. And a lapsed policy protects nobody.
So the aim is not the biggest number you can imagine. It is the right number, worked out on purpose.

The quickest method, and the one most rules of thumb are built on. Take your annual income and multiply it.
The usual guidance in India is 10 to 15 times annual income as the floor. Use the higher end if you are younger and have more earning years ahead. Use the lower end as you approach retirement. Some advisers add Outstanding loans on top.
It takes five seconds and gets you into the right neighbourhood.
What it cannot do is account for anything specific about you. Whether your spouse earns. Whether you have a home loan. Whether one of your children needs long-term care. It treats a 32-year-old with three dependants and a 32-year-old with none as exactly the same.
Use it as a quick sanity check, not as your answer.

Human Life Value, usually shortened to HLV, asks a different question: what are your future earnings worth to your family, in today's money?
The thinking goes like this. You have a certain number of working years left. Some of what you earn, you spend on yourself, so your family would not miss it. The rest is what they would lose.
But that loss would be spread over decades, and money received today can be invested. So you scale the figure back to what it is worth right now. This is called discounting.
In practice: take your annual income. Subtract what you spend on yourself. Count the years until you plan to retire. Then discount that stream of income using a rate that already allows for inflation.
HLV gives a far more personal figure than a flat multiple, and it is where most professional advisers start.
Its weakness is that it is only as good as its assumptions. Change the discount rate by two percentage points and the answer moves by tens of lakhs. It also ignores what you owe, so a large home loan does not show up anywhere in the calculation.

This one starts from the opposite end. Instead of asking what you are worth, it asks what your family would actually have to pay for.
Add up what would be needed:
● Outstanding loans that would have to be cleared
● The cost of educating your children
● The household running costs your income covers, and for how many years
● A buffer for immediate expenses
Then subtract what already exists: savings, investments and any cover already in place.
What is left is the gap. The gap is your sum assured.
One rule makes this much easier. Work entirely in today's money, and use a discount rate that already allows for inflation. Do not mix today's rupees with future inflated rupees in the same sum. That single mistake is behind most of the alarmingly large numbers people come away with.

Meera is 34 and lives in Pune. She earns ₹1.1 lakh a month, so ₹13.2 lakh a year. Her husband works too.
They have two children, aged six and three, and ₹42 lakh still outstanding on their home loan. She has ₹22 lakh in savings and investments set aside for the family, plus ₹40 lakh of group cover through her employer. She plans to work until 60, so she has 26 earning years left.
Method one, income multiple. Fifteen times ₹13.2 lakh comes to ₹1.98 crores. Call it ₹2 crore.
Method two, HLV. Meera spends around ₹30,000 a month on herself, so ₹3.6 lakhs a year. That leaves ₹9.6 lakhs a year going to the household. Discounting 26 years of ₹9.6 lakhs assuming the rate of inflation at 3% net of inflation gives a factor of about 17.9. So ₹9.6 lakh multiplied by 17.9 works out to roughly ₹1.72 crore.

Method three, needs-based. In today's money:
● Home loan to be cleared: ₹42 lakhs
● Education for two children, at about ₹20 lakh each for a professional degree: ₹40 lakh
● Household costs her income supports, ₹55,000 a month for 15 years until the younger child turns 18, discounted at assumed 3% net of inflation: about ₹79 lakhs
● Immediate expenses and a buffer: ₹5 lakhs
● Total required: ₹1.66 crores
● Less savings and investments already set aside: ₹22 lakhs
● Gap: ₹1.44 crores
Three methods, three answers: ₹1.98 crores, ₹1.72 crores and ₹1.44 crores.

Here is the honest answer: the range is the finding.
Meera's cover belongs somewhere between ₹1.5 crores and ₹2 crores. Anyone telling her there is one correct figure, right down to the decimal, is selling something.
A few judgements will settle it.
Start with the needs-based figure as your floor. It is built from real obligations. If Meera insured for less than ₹1.44 crores, something on that list goes unfunded.
Then look at HLV. It sits in the middle and captures something the needs list misses. Her family would lose more than a set of line items. They would lose a standard of living, and all the things nobody thought to budget for.
Be careful with the employer cover. That ₹40 lakh is tempting to subtract, but group cover usually ends when the job does. It may not follow her into retirement or through a career break. Treating it as permanent is how people end up under-insured at exactly the wrong moment. Most advisers would count it as a useful extra, not part of the foundation.
Weighing all that up, a sum assured of around ₹1.75 crores looks sensible for Meera. She should look at it again in a few years.

A loan being repaid. As the outstanding balance falls, so does part of your requirement. This one works in your favour.
A change in dependants. A new child. An ageing parent moving in. A spouse leaving work. Any of these can move your figure by tens of lakhs.
Inflation. ₹55,000 a month will buy noticeably less in fifteen years than it does today. Working in today's money handles this, but only if you revisit the sum as your actual costs change.
The takeaway: this is not a one-time calculation. Redo it whenever something significant changes in your life, and otherwise every three years or so.

Run all three methods. They will disagree with each other, and that disagreement is useful. It shows you the range you are choosing within, instead of handing you a number to accept on faith.
Then compare what you have against what you need. If there is a shortfall, you now know exactly how big it is and where it came from. That is a far better starting point than a vague feeling that you should probably have more cover.
Take fifteen minutes with a calculator and last month's bank statement. It may be the most useful fifteen minutes of financial admin you do this year.
If you would like help working through the numbers, our team is on 1800 266 8833 between 9:00 am and 7:00 pm, Monday to Saturday.