The Life Insurance Rule: How much money will your family need if your income stops?

economictimes.indiatimes.com:

term life insurance if you have people who depend on you financially. If you unexpectedly pass away, your loved ones might struggle to cover their living expenses, debts, and future plans without your income. Term life insurance provides a one-time payment to help fill this financial gap and support their stability.

The Life Insurance Rule

So, how much money will your family need if your income stops? The life insurance rule recommends having life insurance coverage that is at least 10 times your current income. This amount should consider all your debts and loans. This rule helps determine the amount of income your family will need to cover their daily expenses if you are no longer there.

Also read: Latest claim settlement ratio of life insurance companies in India released in 2024

Say, if your annual income is Rs 5 lakh, you need Rs 5 crore of life cover so that your family does not face any financial difficulty and can continue with their current lifestyle, even in your absence.

Remembering that your income will change over time is important, so it's a good idea to review your life insurance coverage every few years. This is a crucial part of ensuring the financial security of your family in the event of your unexpected passing.

How to calculate minimum sum assured

To determine the minimum sum assured needed from a life insurance policy, you should start by calculating your annual income and the present value of your long-term and medium-term goals. Then, subtract your current liabilities from the minimum