How to choose the right sum assured for your Term Insurance Plan?

The right sum assured is not simply the largest cover you can afford or a round figure that sounds sufficient today. It should reflect the income your household may lose, the loans that would still need to be repaid, and the goals your family would continue to pursue. Post the 2026 Budget, it becomes even more important to separate protection needs from tax-saving decisions while choosing Term Insurance in India. Aditya Birla Sun Life Insurance (ABSLI) offers protection plans under the regulatory oversight of the Insurance Regulatory and Development Authority of India (IRDAI).

What is Term Insurance and how does it work?

Term Insurance is a type of Life Insurance that provides cover for a fixed policy term. The policyholder pays premiums to keep the cover active. If the life insured passes away during the policy term, the nominee receives the death benefit, subject to the policy terms. If the life insured survives the term, no maturity benefit is usually payable unless the plan includes a Return of Premium option. The sum assured forms the basis of the death benefit, making it one of the most important decisions when purchasing the policy

Why does choosing the right sum assured matter?

A low cover amount may leave the family with a financial shortfall, even when a policy is in place. A very high cover may result in premiums that are difficult to sustain. The aim is to choose an amount that can support essential expenses, repay major liabilities, and protect important financial goals without placing unnecessary pressure on the present household budget. This reflects the importance of Life Insurance as a financial protection tool rather than only a tax-saving purchase.

How can you calculate the sum assured your family may need?

A practical calculation starts with the amount your family may need and subtracts resources already available to them:

In simple terms: Required Cover = Amount You Owe minus Amount You Own. The amount you owe includes living expenses, major goals, and outstanding liabilities. The amount you own includes existing Life Insurance and financial assets that may be available to the family.

When assessing existing assets, consider how readily each asset can be accessed by the family. Cash, bank deposits, and fixed deposits may be easier to use for immediate expenses than property or other less liquid assets. Market-linked investments may also fluctuate in value. A conservative assessment can help avoid overstating the financial resources available to the family.

How can you balance adequate cover with an affordable premium?

The sum assured should provide meaningful financial protection without creating a premium commitment that is difficult to maintain. Compare different cover amounts, policy terms, premium payment options, and only those riders that address a genuine protection need. The premium will also depend on factors such as age, health, smoking status, occupation, and underwriting.

Buying cover earlier may result in a different premium than purchasing it later, since age and health can influence pricing. Use the Term Insurance Calculator for an indicative estimate, and review the final benefit illustration before completing the purchase.

How should inflation affect your cover calculation?

Inflation can reduce the future purchasing power of a fixed sum assured. Education, healthcare, housing, and everyday expenses may cost more several years from now. Instead of considering only current monthly expenses, estimate how long the family may need financial support and consider how costs may rise during that period. Review the cover periodically so that new liabilities and responsibilities can be taken into account.

Can an income multiple help you estimate the cover?

An income multiple can provide a quick starting point, but it should not be treated as the final answer. Two people earning the same salary may have very different loans, dependents, assets, and financial goals. Use the multiple as a sense check after completing a needs-based calculation. A Term Insurance Calculator can help you compare indicative premiums for different sum assured amounts and policy terms before you narrow down the options.

Should existing assets reduce the sum assured?

Existing assets may be considered, but the calculation should reflect how readily those assets could support the family. Cash, bank deposits, and fixed deposits may be easier to access than a self-occupied home or assets reserved for another goal. Market-linked investments can also change in value, so they should be assessed conservatively. Existing Life Insurance should be included only after checking that the policy is active and the cover remains applicable.

What should you check apart from the sum assured?

The cover amount is important, but it is not the only factor. Review the policy term, premium payment term, exclusions, payout options, available riders, medical requirements, and claim process. The claim settlement ratio, or CSR, represents the percentage of claims settled out of claims received. As per annual audited figures submitted to IRDAI for FY 2025-26, ABSLI settled 98.86% of individual claims. CSR provides useful context, but it does not guarantee the outcome of a specific claim, which remains subject to accurate disclosure, policy status, policy terms, and claim documents.

How can you compare ABSLI Term Insurance options?

You can compare ABSLI Term Insurance Plans and assess the available cover choices, premium payment options, payout structures, riders, and exclusions. Review the applicable Product brochure, Customer Information Sheet, and policy contract before making a decision.

When should you review your sum assured?

Review the sum assured after major changes such as marriage, childbirth, a home loan, a significant increase in income, or a change in financial dependents. Inflation, new liabilities, and changing family responsibilities may also affect whether the original cover remains adequate. Periodic reviews can help keep the sum assured aligned with the family’s financial needs.