What it is
The amount of cover on a life insurance policy is the sum your family is meant to receive if the worst happens. Choosing that amount is one of the biggest decisions when you buy term insurance, a plain life cover that is bought for protection.
There is no single number that suits everyone. The right figure depends on who relies on your income, what you owe and what you can pay in premiums each year. The IRDAI pages that guide policyholders do not set a formula for cover size. They do set out how to buy sensibly, and that shapes how you should think about the amount.
How it works
Think of sizing the cover as three separate questions.
- Who depends on you? Spouse, children, parents or anyone else who would struggle without your income.
- What would they need to carry on? Regular household costs, repayment of loans and big future expenses.
- What can you pay? IRDAI’s guidance for dealing with intermediaries says to consider only products you can afford.
The first two questions push the amount up. The third keeps it realistic. A policy you cannot keep paying for protects nobody, so the answer has to fit all three.
IRDAI also asks you to understand your commitments clearly: the payments you must bear when you take the policy, when you surrender it and when you make a claim.
Where to buy
IRDAI’s general advice for life insurance lists the routes. You can buy through a licensed agent or broker, and you should ask for an identity card or licence. You can also buy directly from the company. Before anything else, check that the insurer is registered with IRDAI.
Brokers and agents, whether individual or corporate, are licensed by IRDAI and bound by regulations that include a code of conduct. IRDAI says an intermediary should give you all material information about a proposed cover so you can decide, with full disclosure and transparency.
Common mistakes to avoid
- Buying more than you can afford. IRDAI warns against tall promises and over-selling tactics. A large cover amount sold on enthusiasm can become a premium you struggle to pay.
- Skipping the brochure. IRDAI advises reading the policy brochure or prospectus carefully, including what the policy covers and what it does not. Ask the intermediary to explain the scope of cover and exclusions.
- Signing a blank proposal form. IRDAI says to fill in the proposal form yourself and never sign it blank. If a term is unclear, ask for it to be explained.
- Not checking the licence. The intermediary should be licensed for the type of business, such as life insurance, general insurance or both.
- Paying without a receipt. If you pay premiums through an intermediary, check that they are authorised by the insurer to collect them and insist on a duly signed receipt immediately.
- Ignoring the claim process. Ask what documents and procedures a claim involves. IRDAI notes that besides the insurer, other agencies may need to be informed, so get full details of what is expected.
What it means for you
Start with your dependants and obligations, then test the resulting amount against what you can comfortably pay every year. If the two do not match, it is better to work out the gap with an intermediary than to take a policy you may have to drop.
Once the policy reaches you, read it thoroughly. IRDAI points out that every life insurance policy comes with a free-look period. This is a set window in which you can hand the policy back if its terms are not acceptable to you. If you want health protection too, that is a separate product; see our explainer on health insurance.
Remember that an intermediary should understand what you need and explain the commitments. If the cover amount recommended to you does not make sense, ask why before you sign anything.
