Is ₹1.5 Crore Term Insurance Enough for Your Family?

When you have a great salary, life throws confetti on you. Pay off your EMIs with a smile, host a lavish vacation this year, and save up for your child’s education and your retirement.

But have you ever wondered what happens to your lifestyle if your monthly income comes to a standstill?

Your term insurance, precisely a term life cover, can help here. A term insurance cover is a simple life insurance plan that lets you pay a certain amount of premium every year, after which your nominee can claim a hefty sum as soon as you’re declared dead.

Most professionals with high income jump at the prospect of a 1.5 crore term insurance cover.

But does a 1.5 crore term insurance cover suffice for two decades or three? Let’s break down this calculation in simple terms so that you can make the right choice for your family.

Is ₹1.5 Crore Term Insurance Enough for Your Family

How to Assess Whether ₹1.5 Crore Cover is Enough for Your Family

To know whether 1.5 crore term insurance cover is enough, you must evaluate your lifestyle and expenditure pattern.

Let’s assume you’re a high-income family that resides in a metropolitan city.

You have a home loan EMI, education loans, monthly expenditures, a car loan, etc. to repay. You also need money to finance an extravagant vacation every year.

If your household’s monthly budget is about 1.5 lakh, that makes your yearly budget 18 lakhs.

Now let’s do some simple calculations. Let’s say your family has a corpus of 1.5 crores. After repaying your outstanding loan of 60 lakhs, you’ll be left with 90 lakhs.

If your family’s budget eats up 18 lakhs every year from this sum, it will barely suffice for 5 years.

Even if you decide to keep your 1.5 crores in a fixed deposit, the interest that this sum will throw your way will fail to meet your annual budget.

You must acknowledge the fact that ₹1.5 crore might be a big number today, but it could become an inadequate number in a decade.

Do you know why a bottle of your favorite beverage used to cost less than it does today?

That’s the work of inflation. Inflation increases the price of goods and services by a certain percentage every year.

It reduces the purchasing power of money. For instance, 10 years ago, your child’s annual tuition fee could have been 1.5 lakhs.

But today it costs nearly 3 lakhs (assuming that the rate of inflation has been 7% over the last decade). But the good news is that you can beat inflation with a cleverly worded insurance cover.

How to Know the Exact Term Cover that You Need Instead of Settling for ₹1.5 Crore

Instead of using a round number, like 1.5 crore, you could use the DIME rule to calculate the exact term cover that you need.

D stands for Debt: It refers to all the liabilities that you need to pay off in order to provide a better life for your family. That includes your outstanding home loan, personal loan, car loan, etc. A reasonable thumb rule is to multiply your income by 10 times or 15 times so that your family can manage your lifestyle for the next 10 years or 15 years.
I stand for Income: It refers to your family’s total income. You need to make sure that your beneficiaries have access to enough funds to maintain the lifestyle that you’ve built for your family.
M stands for Milestones: It refers to the funds that you’ve set aside for your long-term financial goals. It could range from your child’s higher education to their marriage.
E stands for Expenses: It refers to the additional amount of money that your family needs to maintain its lifestyle. Let’s understand this with an example.

A 25 year-old professional with an annual income of 20 lakhs has the following financial commitments:

Home loan: 50 lakhs
Income replacement: 15 times 20 lakhs = 3 crores
Higher education for two children: 40 lakhs
So, his total cover should be 3.9 crores instead of the round sum of 1.5 crores.

In this case, a 1.5 crore term insurance cover would leave a gap of more than 2.4 crores, which might force his family to make lifestyle sacrifices.

When is a 1.5 Crore Cover Sufficient?

A 1.5 crore life cover is a pretty decent option for people who fall into any of the following categories:

People with low debts: If you’ve already paid off your home loan and no longer have any other significant liabilities.
People with substantial savings: If you have mutual funds, fixed deposits, stocks, or property that total a few crores.
People with fewer dependents: If your children have already graduated and are able to fend for themselves.
People with a lower income: If you’re a young professional with a small income who wants to increase your cover as your income grows.

On the other hand, people with a large outstanding home loan, young children, and elderly parents, on the other hand, should consider getting a life cover with a higher sum assured.

Tax Benefits for Term Insurance Policy Holders

Since you’re considering a term insurance plan, you should know that a term insurance plan offers a slew of tax benefits. Here are a few tax breaks that you can enjoy if you buy a term insurance product:

Deduction on Premium Paid: You can claim a tax deduction on the premiums that you’ve paid for your life cover under section 123 (read with schedule XV) of the Income Tax Act, 2025. The overall deduction under this section is limited to 1.5 lakhs.
Tax-Free Payout for Nominees: The corpus that your nominees receive upon your demise is completely tax-free.
Health Rider Deduction: If you buy a critical illness rider, you can claim a tax deduction on the premiums that you’ve paid under section 126 of the Income Tax Act, 2025.

Tax laws are subject to change, and your tax regime depends on your annual income and the tax slab that you fall into. So, consult a tax specialist before finalizing your tax decisions.

How to Create the Perfect Term Insurance Plan

If you’ve realized that a 1.5 crore term insurance policy doesn’t fit your needs, here are a few ways to create the perfect term cover:

Use the Step-Up Option: Most insurers let you increase your cover by 5% or 10% every year, depending on your needs. This could be a great way to combat inflation.
Add Riders: You can also add additional riders to your base cover, such as an Accidental Death rider or a Critical Illness rider, to provide extra protection for your family.
Buy Life Insurance for the Right Duration: Make sure that the policy that you buy lasts until you retire (usually between the ages of 60 and 65).
Compare Claim Settlement Ratio (CSR) and Easy Claim Settlement Process: Do a thorough examination of your options before purchasing a term insurance product. It’s crucial to compare the Claim Settlement Ratios (CSR) and the ease of the claim settlement process before buying a policy.

Things to Keep in Mind Before Finalizing a Term Insurance Policy

Remember the following essential pointers before purchasing a term insurance product:

The approval of the underwriting authority depends on factors such as your age, health status, income, and lifestyle choices. In addition, various insurers have varying premium rates, eligibility criteria, riders, and plan terms.
Most insurers require you to undergo a series of medical tests before approving your application for a high-value term insurance product.
When filling out the proposal form for your insurer, make sure that you disclose all of your relevant medical information so that the underwriters can approve your application faster.
All plan details, including premium rates, terms, and conditions, are subject to the insurer’s terms and conditions.

Summing It All Up

Every rupee that you make helps you live a life of luxury today. However, your term insurance plan will protect your family’s future tomorrow.

A 1.5 crore term insurance cover may appear to be sufficient at first glance, but high-net-worth individuals must realize that they need more than 1.5 crores to fulfill their financial obligations and long-term aspirations.

So double-check your numbers and make the right decision about your life cover today.