Why Flat ₹1 Crore Cover Fails
Many salaried earners buy a ₹1 Crore policy and assume their family is set for life.
Consider this real scenario:
- Outstanding Home Loan: ₹55 Lakhs (cleared immediately on demise)
- Remaining Insurance Payout: ₹45 Lakhs
- If the family spends ₹60,000/month (₹7.2L/year), the remaining ₹45 Lakhs is completely exhausted in 6.2 years, leaving the family with zero support for child college or retirement.
The Proper Formula: The D-I-N-E Method
$\text{Required Cover} = \text{Debts} + (20 \times \text{Annual Expenses}) + \text{Next Milestones} - \text{Liquid Assets}$
For a family spending ₹8 Lakhs/year with a ₹50L home loan and ₹30L college fund:
$\text{Cover} = 50\text{L} + (20 \times 8\text{L}) + 30\text{L} - 20\text{L} = \mathbf{₹2.2 \text{ Crores}}$
The Return of Premium (TROP) Trap
Agents love pushing Term with Return of Premium because commissions are higher. A pure term plan costs ₹14,000/year, while TROP costs ₹34,000/year. Take the pure term plan and invest the ₹20,000 difference into a Nifty 50 index fund.