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The Importance of Adequate Coverage in Term Insurance

  5/22/24 7:47 AM

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  5/22/24 7:47 AM   |

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For any breadwinner, ensuring the well-being of their family is a top priority. There are lots of responsibilities when your family is financially dependent on you. Ensuring they are financially stable even in your absence is important. This is where term insurance comes in. According to Statista, there is only 4% insurance penetration in the country.

Term insurance is the simplest form of life insurance that offers life cover for a specific period. It provides a payout to the nominee in case of the unfortunate demise of the insured during the policy term. Term insurance also provides tax-saving benefits under Sections 80C and 80D, and the payout to beneficiaries is also fully tax-free under section 10(10D). But simply buying a term insurance plan is not enough, you also need to ensure that the coverage provided by your plan is adequate.

Understanding the Importance of Adequate Coverage in Term Insurance

Adequate Coverage simply means that your life cover amount needs to sufficiently provide for your family in case of your demise.

Whether your coverage is adequate or not will depend on various criteria, such as your policy’s sum assured, deductibles, exclusions, your own monthly expenses, your liabilities, tax burden etc. The sum assured you family receives should not only be able to provide for them for years to come but should also cover for all your outstanding liabilities and debts.

You can also include additional add-on benefits such as accidental death benefits that can increase the payouts given to your family members.

How Does Term Insurance Coverage Work for An Individual?

Here’s an example to show you how term insurance coverage works for an individual:

For instance, your current salary is ₹ 10,00,000 per annum. To ensure that your family is well taken care of in your absence, you can consider a sum that is 10 times your current salary, i.e., ₹ 1 crore. In case of an unfortunate event during the policy term, your loved ones will be given a death benefit amounting to ₹ 1 crore. This payout received will be tax-exempt, subject to conditions under Section 10(10D) of the Income Tax Act, 1961.

Note that this is just an example, and 10 time of your annual salary is just a broad rule of thumb. You should fine tune your coverage basis your exact circumstances. Let us discuss this in detail.

Calculating the Right Coverage Amount

Simply purchasing life insurance without considering the coverage amount is not correct. The goal is to ensure that you get an adequate amount of money to meet your family's needs in the future. However, how much is adequate? The cover is determined not by your current income, but rather by how much money your family will require to live comfortably in your absence.

While there are several methods to calculate the coverage amount, here are 2 tested methods that you can consider. Note that we have already talked about the underwriter’s thumb rule, which says that a coverage of around 10-12 times your annual income.

1. Human Life Value

The Human Life Value (HLV) calculates the current value of your projected revenues, expenses, debts, and savings. The HLV figure is often used to calculate the amount of money required to protect your beneficiaries' futures with term life insurance.

When calculating your HLV, you must consider seven elements. They are:

  • Your occupation.
  • Your age.
  • Your employment benefits.
  • Your gender.
  • Your target retirement age
  • Your annual income.
  • Your spouse and child's financial records.

2. Income Replacement Value.

Using this method, you can calculate your life insurance coverage based on the income your family will lose upon your untimely death. It is based on the your annual earned income and is a straightforward method of determining one's life insurance coverage needs.

Life insurance cover is current yearly wage multiplied by the number of years before retirement.

For example, if your annual income is INR 10 lakh, you are 30 years old, and you plan to retire after three decades. In this case, the required amount of life insurance is INR 3 crores (10,00,000*30).

How to Buy Term Insurance Online from Edelweiss Life Insurance?

An online term policy can be purchased in four easy steps:

  • Visit the Edelweiss Life Insurance website and select your coverage.
  • Customize your term plan by selecting suitable tenure, payout mode, and premium payment frequency.
  • Enhance your coverage by choosing from four unique riders.
  • Submit the necessary documents for verification.
  • You can use our website's online term insurance premium calculator to determine your exact premium amount.


Term insurance provides a comforting safety net for your family in the event of unexpected challenges. It gives them a fixed amount to help them fulfil their needs and stay stable even in your absence. Above all, term insurance offers you greater peace of mind, since unfortunate scenarios in life rarely come with warnings. Make sure you buy the policy from a reliable insurance provider, comparing claim settlement and solvency ratios of multiple companies to arrive at the right decision.


Swati Tumar - Travel & Finance Writer

Swati is a Writer in the day and an illustrator at night. Among her interests, she is quite fond of art and all things creative. She often indulges herself in creating doodles, illustrations, and other forms of content. She identifies herself as an avid traveler and shameless foodie.

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