One simple way to size term insurance is this: needed life cover equals the loan outstanding at the start of the year, plus the year's planned outflows multiplied by N years, where N is the number of years the family wants covered (10 is a common starting choice). The protection gap is needed cover minus the term and employer cover you already hold. In the illustrative example below, a Pune family needs ₹1,38,00,000, holds ₹1,10,00,000, and has a gap of ₹28,00,000 that grows to ₹32,24,000 over three years even as the home loan shrinks.
This is one method, not the only one. Other methods use a multiple of income, or a detailed list of future goals. We like this one because every input is a number the family already knows, and anyone can check the arithmetic.
What does the formula say?
Write it out in two lines:
- Needed life cover = loan outstanding at the start of the year + (planned outflows for the year × N)
- Protection gap = needed cover − cover held
Each part has a plain meaning.
Loan outstanding is the principal still owed on the home loan, car loan and any other loan. If a partner with an income dies, the family should not be left with a loan it cannot service. The cover should be able to close it.
Planned outflows for the year are what the household expects to spend in a year: living costs, school fees, SIPs it wants to keep running, premiums, rent. Not the EMIs, because the loan is already covered by the first term.
N is the number of years of those outflows the family wants the cover to fund. Ten years is a reasonable default for a family with a young child. A family whose child is close to independence might pick fewer. A family with a newborn might pick more. The choice belongs to the family.
Cover held is the total of term policies on the members with an income plus any group life cover from an employer.
Why use outflows instead of income?
Income-multiple rules (cover equal to ten or fifteen times yearly income) are quick, but they skip the question that matters: what will the family actually need to spend? Two families with the same income can have very different outflows. Starting from planned outflows ties the cover to the household's real budget.
A worked example: the Rao family
Asha and Ravi Rao live in Pune with their daughter Meera. Every number below is illustrative and made up for this example.
At the start of the year:
- Home loan outstanding: ₹42,00,000
- Planned outflows for the year (excluding EMIs): ₹9,60,000, which is ₹80,000 a month
- N chosen by the family: 10 years
- Cover held: Asha's term policy ₹50,00,000, Ravi's term policy ₹50,00,000, Ravi's employer group life cover ₹10,00,000, a total of ₹1,10,00,000
Needed cover = ₹42,00,000 + (₹9,60,000 × 10) = ₹42,00,000 + ₹96,00,000 = ₹1,38,00,000
Protection gap = ₹1,38,00,000 − ₹1,10,00,000 = ₹28,00,000
Year by year
The interesting part is what happens next. The family repays the loan, so the outstanding falls. But costs rise and Meera's school fees go up, so planned outflows rise too. In this example they rise by 5% every year.
| Year | Loan outstanding | Planned outflows | Needed cover (N = 10) | Cover held | Gap |
|---|---|---|---|---|---|
| Year 1 | ₹42,00,000 | ₹9,60,000 | ₹1,38,00,000 | ₹1,10,00,000 | ₹28,00,000 |
| Year 2 | ₹39,30,000 | ₹10,08,000 | ₹1,40,10,000 | ₹1,10,00,000 | ₹30,10,000 |
| Year 3 | ₹36,40,000 | ₹10,58,400 | ₹1,42,24,000 | ₹1,10,00,000 | ₹32,24,000 |
The loan falls by ₹5,60,000 over these years. Ten years of outflows rise by ₹9,84,000. So needed cover goes up, and the gap widens from ₹28 lakh to ₹32.24 lakh, although nothing about the policies changed.
Many families size cover once, at the time they take the home loan, and never look again. This table shows why a yearly check is useful. The answer moves.
What if the employer cover goes away?
Ravi's ₹10,00,000 group life cover is tied to his job. If he changes jobs or takes a break, cover held falls to ₹1,00,00,000.
| Year | Needed cover | Gap with employer cover | Gap without employer cover |
|---|---|---|---|
| Year 1 | ₹1,38,00,000 | ₹28,00,000 | ₹38,00,000 |
| Year 2 | ₹1,40,10,000 | ₹30,10,000 | ₹40,10,000 |
| Year 3 | ₹1,42,24,000 | ₹32,24,000 | ₹42,24,000 |
This is worth knowing before a job change, not after. A between-jobs gap also tends to coincide with a period when savings are doing more work, which is the subject of emergency runway in months.
How should the cover be split between two incomes?
The formula above gives one family number. In a two-income home, the question of how much sits on each partner depends on who brings in what and who carries which loan. A common approach is to run the formula from each partner's point of view: what would the family need if this person were gone, given that the other income continues?
That version subtracts the surviving partner's expected contribution from planned outflows before multiplying by N. It is more work, and it often shows that the partner with the higher income needs more cover. The simple family-level version is still a good first check, because if the family-level gap is large, the per-person gap usually is too.
What about health cover?
Health cover does not fit a neat formula. The right amount depends on hospital costs in your city, the ages and health of family members, whether parents are covered, and how much an employer policy provides. Those factors vary too much for one rule to be honest.
So in Kosh, health cover has no formula. The family types the amount it wants. Kosh then compares that with cover held. For example, if the Raos decide they want ₹20,00,000 of health cover, and they hold ₹5,00,000 through Asha's employer plus a ₹10,00,000 family floater, cover held is ₹15,00,000 and the health gap is ₹5,00,000.
As with life cover, employer health cover ends with the job. It is worth seeing the gap both with and without it.
When should you recheck the gap?
Once a year at a fixed time works for most families, plus any time something big changes:
- A new loan, or a large prepayment
- A child is born, or school fees step up
- A job change, especially one that ends employer cover
- A policy lapses or a premium is missed
That last one is easy to miss. A term policy that lapses because a premium was not paid on time drops straight out of cover held. If both partners assume the other one paid it, the family can lose cover without anyone noticing. A shared plan with due-date notifications helps here.
How Kosh helps
Kosh's Protection gap compares needed cover with cover held, using the loan outstanding and planned outflows already on the family's plan and the N the family chooses. Health cover uses the amount the family types. Every premium sits on the shared plan with its schedule, and every Member with notifications on gets a notification on the due date, so one partner can tick it done and the other phone shows it. Kosh never names a policy or an insurer for you to pick. Kosh tracks and warns; you decide.
See how it works at ourkosh.com.