How Much Life Insurance Cover Do You Really Need?

3-June-2021 |

Life insurance secures your loved ones’ future in the event of an unfortunate circumstance. The basic principle of a life cover policy is to provide financial cover when a policyholder loses their earning capacity due to an untimely eventuality.

For the benefits of a life cover, the policyholder must pay a premium. Therefore, it is essential to determine your premium paying capacity and your current financial situation while choosing a life cover plan.

Even after we are gone, the ones after us must lead a life of comfort and ease. For this very reason, you need to get the proper life cover policy! When we say proper life cover policy, we not just mean choosing the right product but also the right premium size.


Inadequate coverage will do more harm than good. It will create a bubble of security, which in hindsight was never quite enough!


How Is Life Insurance Coverage Calculated?


Life insurance companies calculate your life cover based on a metric known as Human Life Value (HLV). HLV is the current value of all the future income you expect to earn till you retire. In the event the sole bread earner of a family passes away, his/ her family stands to lose the future income and their means of sustenance too. A life cover policy provides financial compensation for this loss with the sum assured amount.


The sum assured in your life cover plan is in line with your HLV and should be roughly 10-15 times your annual income as per financial experts. Loan repayments and expenses are additional factors that need to be considered when choosing your life insurance coverage.

Since insurance companies compensate the beneficiaries of a life cover for financial loss, they cannot profit from insurance. Therefore, the life cover in an insurance policy can never be greater than the HLV.


How Much Life Insurance Cover Do You Really Need?

It is always advisable to opt for the maximum coverage possible with your life cover policy. As we grow older, the financial needs of our family grow simultaneously alongside our career and earnings! A policyholder should evaluate their financial condition and modify their life cover policies accordingly.

Life insurance
plans can either offer pure life cover, i.e., just a death benefit or a mix of investment along with a death benefit. The death benefit amount is much lower than the amount in a pure life cover policy in the latter case. Buying a term life cover should be the priority of any policyholder as it covers financial risk and is essential. Investment and endowment policies can take the second precedence.

If you are looking for a life cover plan, you should check out the Tata AIA Life Insurance policy.


India is severely under-insured. In fact, only $7.8 is spent for every $100 of required life cover, which is an enormous gap. On the other hand, insurance companies enjoy high sales, which indicate that consumers opt for endowment or investment-linked plans rather than opting for a pure life cover policy. The death benefit offered in these policies is insufficient to provide adequate coverage in case of a policy buyer’s untimely demise.

What consumers should note here is that life insurance is required as an income replacement. For example, if you are the chief earner in your household and your annual income is INR 10,00,000, you would need the same amount to secure your family’s future in your absence plus, maybe a little extra to safeguard against inflation.

Life insurance
plans can be looked up and compared online, with companies now offering a host of other benefits along with your standard life cover policy. Optional add-on coverages like critical illness cover, personal accident cover, and a lump-sum payout in case of disablements are good to have and do not cost a lot.


Insurance agents may sometimes push investment-linked insurance products as their employing companies earn higher revenues on these products and agents get good incentives in return. It is important for consumers to research and understand their insurance needs before opting for a life cover plan.


What Do You Lose If You Are Not Insured Adequately?


The primary factor of income replacement is lost if you do not have sufficient life cover. In the case of an eventuality, your family may not get adequately compensated for the loss of income, affecting their standard of living. It is also a good idea to buy adequate coverage when you are young, as the premium amount can increase when you grow older.


As your earning capacity increases with time, your household’s lifestyle index also increases. This means that the life cover you require will also increase, therefore, you will need to get additional coverage to keep up with your living standards. It is essential to be updated with the current HLV so that your family’s insurance needs are met.


While the life insurance premium goes up with an increase in coverage, it also means that the premium spent can become a source to save tax. Life insurance premiums up to INR 1,50,000 are exempt from tax under Section 80C of the Income Tax Act.


Life insurance
has become essential, as we have seen, but it is crucial to know the kind of coverage and the amount of coverage you need. While choosing an insurance plan, it is prudent to decide beforehand the risks you are looking to cover. 

If you are just looking to cover loan repayments and have no dependents, it may be better to opt for an investment-linked plan. Banks and financial institutions also offer an insurance deductible for loans, which may be the better option if you have no dependents. However, pure term life insurance is the best option when you are looking to secure the future of your dependents.

Like investing in stock markets or other avenues, it is always a good idea to educate yourself to make the right choice. Researching about insurance is easier than ever as you can look up plans and compare them online without the need for depending on an agent.


Need help to choose the right plan?


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  • Insurance cover is available under the product.

  • The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan and it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.

  • Buying a life insurance policy is a long-term commitment. An early termination of the policy usually involves high costs and the Surrender Value payable may be less than the total premiums paid

  • Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.