How much term insurance and health insurance do I actually need?
Updated 7 min read By Cashflow and Wellness Advisors
Short answer
Term cover should be large enough to replace the income your family depends on, clear your loans and fund big goals such as education, minus savings you already have — often 10 to 15 times annual income. For health, a family floater of your own plus a super top-up for large bills, and separate cover for parents, is a common structure. Employer cover alone is not enough.
Most men in their late thirties and forties have some insurance. Usually it is a mix: an old endowment policy bought years ago, a group health policy from the employer, perhaps a term plan picked up after a colleague's sudden illness. But very few know whether it is actually enough.
There are two separate questions here. Term insurance answers "what happens to my family's income if I die?" Health insurance answers "what happens to our savings if someone is in hospital?" Let us take them one at a time.
How much term insurance is enough?
Term insurance is the simplest kind of life insurance: you pay a premium, and if you die during the policy term, your family receives the sum assured. Nothing is paid if you survive the term, which is why a large cover is relatively affordable.
A common rule of thumb is 10 to 15 times your annual income. That is a reasonable first check, but a better answer comes from adding up what your family would actually need.
Step 1: Add up income replacement, loans and goals
Work through four numbers.
- Income replacement. How much does your family need each year to live, not counting your own personal expenses? Multiply by the number of years they would need support — usually until your youngest child is financially independent, and longer for your spouse. Because the payout would be invested, the total needed is somewhat less than a straight multiplication.
- Loans. Add every outstanding loan: home loan, car loan, personal loan. Your family should not inherit EMIs.
- Big goals. Add the amounts for goals that must happen anyway, mainly children's higher education. Our guide on how much to save for your child's higher education shows how to estimate this.
- Subtract what you already have. Take away existing savings and investments that your family could use, and any personal term cover you already hold.
Do not count your employer's group life cover. It usually ends the day you leave the job, and it is rarely large enough on its own.
Illustration: A 38-year-old salaried man earns ₹15 lakh a year. His family would need about ₹9 lakh a year to live, for roughly 15 years until the younger child finishes education. If the payout were invested at an assumed return about 2% a year above inflation (an assumption, not a forecast), covering that need takes about ₹1.16 crore today. He adds a home loan outstanding of ₹35 lakh and an education goal of ₹30 lakh, and subtracts ₹15 lakh of existing savings. The total comes to about ₹1.66 crore — so a cover in the region of ₹1.75 crore, or roughly 11 to 12 times his income. (Illustrative family and assumptions only.)
How long should the term be, and what else matters?
The cover should last until your family no longer depends on your income — typically until your planned retirement age, or until your loans are cleared and your children are independent, whichever is later. For most people that means a term ending somewhere between 60 and 65.
A few practical points:
- Buy earlier rather than later. Premiums rise with age and health conditions.
- Disclose everything honestly. Smoking, existing illnesses, other policies. Non-disclosure is a common reason for claims being disputed.
- Review when life changes. A new home loan, a new child or a big salary rise may need a higher cover.
- Keep nominee details current and tell your family where the policy documents are.
How much health insurance does a family need?
Health insurance pays hospital bills. The right cover depends on your city, the kind of hospital you would use, and the ages of family members. Rather than one big number, it helps to think in layers.
| Layer | What it is | What it does |
|---|---|---|
| Base family floater | One policy with a single sum insured shared by you, your spouse and children | Covers most ordinary hospital stays |
| Super top-up | A policy that pays only after your total bills in a year cross a set amount (the deductible) | Covers the rare very large bill at a relatively low premium |
| Separate policy for parents | Individual or senior-citizen plans for your parents | Keeps their higher claims from exhausting your family floater |
| Employer group cover | Health cover through your job | A useful extra, but it ends when the job ends |
A common approach for a young family in a large city is a base floater of a few lakh rupees, with a super top-up of a much larger amount whose deductible roughly matches the base cover. When a large bill arrives, the floater pays first, and the top-up pays above the deductible. The exact amounts depend on your city and family, and the specific plan should be checked against your situation.
Family floater or individual policies?
A family floater covers everyone under one sum insured. It is usually cheaper than separate policies and works well when everyone is young and healthy. The risk is that one big claim uses up the cover for the rest of the year.
Individual policies give each person their own sum insured. They cost more, but they make sense for older family members or anyone with an existing condition.
Most families end up with a mix: a floater for the couple and children, and separate cover for parents.
Why isn't my employer's cover enough?
Employer group cover is valuable while it lasts, but it has three weaknesses. It stops when you change jobs, retire or are laid off — exactly when you may need it most. The sum insured is often modest for a whole family. And if you only start buying your own policy in your fifties, any condition you have developed by then may face waiting periods or higher premiums.
The safer order is to hold a personal policy of your own and treat the employer cover as a bonus on top.
What about my parents' health cover?
Parents in their sixties and seventies are where the largest hospital bills tend to arise. Buying a fresh policy at that age is more expensive and often comes with waiting periods for existing illnesses, so start as early as you can. A separate policy for them, possibly with a super top-up, protects your own floater. If they are already retired, see our guide on where retired parents should keep their money, which covers their health-cost reserve too.
Where does insurance fit in the money order?
Insurance is a cost that protects every other plan. In the order money should move, it sits early: an emergency fund for everyday shocks, term and health cover for the large ones, and only then long-term investing for goals. Looking at protection, buffer and goals together — so the premiums fit the month instead of fighting it — is exactly what we map in a first conversation. Which specific plan suits you should be checked against your own health, family and budget.
Questions people also ask
Should I buy term insurance or an endowment or money-back policy?
They do different jobs. A term plan only pays if the insured person dies during the term, which is why a large cover costs relatively little. Endowment and money-back policies combine a smaller cover with savings, so the same premium buys far less protection. Many families find it clearer to buy protection through term insurance and save separately.
Should my spouse also have term insurance?
If your spouse earns, yes — that income is part of what the family relies on, so it needs replacing too. Even without an income, think about what it would cost to replace the work your spouse does at home, such as childcare. A modest cover can be worth considering in that case.
Is there a tax benefit on health insurance premiums?
Only under the old tax regime. There you can deduct up to ₹25,000 a year for yourself, spouse and children (₹50,000 if any of them is a senior citizen), plus up to ₹25,000 more for parents (₹50,000 if a parent is a senior citizen). This was Section 80D and is now Section 126 of the Income-tax Act 2025. The new regime does not allow this deduction.
Has GST on insurance premiums been removed?
Yes. From 22 September 2025, individual life insurance, including term plans, and individual health insurance, including family floaters and senior-citizen plans, carry no GST; earlier it was 18%. Actual premiums did not necessarily fall by the full 18%, because insurers' own costs changed too, so compare the current quote rather than assuming a fixed saving.
What happens if I disclose a health condition when buying term insurance?
The premium may go up, or the insurer may ask for tests, but that is far better than hiding it. A claim can be rejected if a material fact was not disclosed, which defeats the whole point of the cover. Always disclose honestly, including smoking and existing conditions.
Start here
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Salary, EMIs, FDs, SIPs and the commitments that repeat every month. One conversation is usually enough to see the sequence.
This article is general education, not personal investment, tax or legal advice. Figures are illustrative, not guaranteed outcomes, and rates and rules change — check current numbers before acting. Regulated investment advice is handled through the SEBI-registered adviser.