Calculate your current and projected expenses at different life stages. Look at your current income which forms the base while calculating the maximum sum assured for any term insurance policy. If you are drawing around Rs 30 Lakhs per annum, the Sum Assured should be 15 times your annual income, i.e., about Rs 4.5 Crore.
In this case, a Rs 5 Crore cover is essential to help your family stay afloat for 15-20 years by when the children may grow up or your spouse may be skilled enough to find alternate sources of income.
However, if your salary is around Rs 20 Lakhs per annum, the insurer may recommend a cover of Rs 3 Crore, unless you have a strong case to still avail a Rs 5 Crore life cover.
Let us consider an example. Suppose you are a 35-year-old male earning an annual salary of Rs.10 lakhs. You have to make arrangements to provide finances for your family for up to 25 years (retirement at 60 years). Assuming your annual expenses, all inclusive are 2.5 lakhs, your family will face a shortfall of Rs.7.5 lakhs. Now, if this shortfall is calculated for 25 years at an expected rate of 8.5% per annum (factoring in inflation at 6%), then the ideal cover for you should be Rs.1.4 crore.
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