When Prasad Patil bought a term insurance cover of Rs 1 crore, he was single and had no dependents. Now married, he feels the Rs 1 crore insurance cover won’t be enough to sustain his family’s needs and cover his goals 10 years down the line. “It may be adequate now, but I have to plan for a situation where we will have kids. Also, my income will rise significantly later. To cover that loss perhaps a higher cover might be required,” says the Mumbai-based self-employed professional. Policyholders like Patil are a rare breed. To most others, a Rs 1 crore insurance cover seems sufficiently large to take care of all their financial goals and sustain their family’s expenses in case something untoward happened to them. “We are seeing many people buying a cover that they are mentally comfortable with, and Rs 1 crore is a popular number. But many buy without doing the basic math,” says Mahavir Chopra, Director, Health, Life and Strategic Initiatives, Coverfox.com. To be fair, the eight figure sum certainly seems very large. If a family puts Rs 1 crore in a bank deposit that earns 7% interest, it will get a monthly income of Rs 58,333. That money can sustain the expenses of an average middle class Indian household.

Or can it? This calculation seems fine on paper, but won’t work when you take into account the outstanding loans taken by the policyholder, the relentless march of inflation and the impact of income tax. Also, one needs to put aside a corpus for certain one-time expenses, such as children’s education and marriage and the retirement needs of the spouse. Our calculations show that if the individual has a home loan and two children, the Rs 1 crore received as insurance money will not sustain the family for more than 12-13 years.