What Is the Maximum Sum Assured in Term Insurance?

When choosing a term insurance policy, deciding on the maximum sum assured is one of the most important steps. This decision shapes your family’s financial security in your absence and determines how well your long-term obligations are met.

In this article, we break down how insurers calculate the maximum sum assured, the factors that influence it, and practical strategies to choose the right coverage. From income multiples and age factors to education, occupation, and affordability considerations, this guide helps you strike the perfect balance between protection and cost.

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What is the Maximum Allowable Sum Assured in Term Insurance?

In India, IRDAI sets no universal cap. Each insurer uses its own underwriting rules to align cover with your income, earning capacity, and lifestyle. Here’s how they generally assess it:

Here’s how insurers generally assess it:

1) Annual Income and Financial Proof: The higher your documented income, the larger the cover you can qualify for.

a) Self-employed individuals provide Income Tax Returns (ITRs) and a CA-certified computation of income.

b) Salaried employees submit salary slips, Form 16, and bank statements.

2) Age-Based Multipliers: Most insurers use income-based multipliers to determine the maximum eligible cover.

Note - This is a commonly used reference table; exact multipliers may vary slightly across insurers. Some insurers also apply these multipliers only above a certain income threshold (e.g., ₹5 lakh per annum). For lower incomes, the maximum cover may be capped at ₹50 lakh–₹1 crore. For ultra-high covers (₹10–₹20 crore and above), reinsurers often review each case individually.

3) Location and Insurer Presence: Smaller insurers, or those with limited branch presence, may restrict high-value covers, or decline applications altogether in:

4) Existing Life Insurance: Insurers review all your active life insurance policies linked to your PAN number to ensure total coverage remains within justifiable limits. This prevents excessive overlap or over-insurance.

5) Age and Occupation Risk: Younger applicants with stable careers (e.g., a 28-year-old salaried professional) usually qualify for higher coverage than someone closer to retirement. Occupations with higher physical risk, like mining, construction, or aviation, may attract stricter limits.

6) Education Level: Graduates and postgraduates are generally eligible for higher multiples since their earning potential is deemed higher. Those with 10th or 12th standard qualifications may need to show proportionately higher incomes to qualify for large covers.

a) Areas prone to insurance fraud,

b) Regions frequently hit by natural calamities, or

c) Pincodes not serviced by their nearest branch or medical network.

7) High-Income Profiles: For very high earners (₹50 lakh+ annual income), insurers may approve sum assureds of ₹10 crore or more, but only after thorough financial and medical underwriting.

Note: Higher sum assured cases undergo a comprehensive medical evaluation, often far more detailed than standard policies. Depending on the insurer’s underwriting protocols, these tests may include:

a) Full blood panel (CBC, liver and kidney function tests, lipid profile, fasting glucose, etc.)

b) Body Mass Index (BMI) and other vitals

c) Ultrasound (USG) to check for internal abnormalities

d) Pulmonary Function Test (PFT) for respiratory assessment

e) Chest X-ray and ECG for heart and lung health

f) Treadmill Test (TMT) to assess cardiac fitness

i) Urinalysis

What are the Factors Influencing the Maximum Sum Assured in Term Insurance?

The sum assured in a term insurance plan should be carefully chosen to provide adequate financial security for your family. Several factors influence this decision:

1. Age of the Policyholder: Your age plays a key role in determining the right cover. Younger individuals usually have more years of financial responsibilities ahead, like paying off loans or supporting dependents, so they often need a higher sum assured.

2. Annual Income: Aim to cover your family’s income needs until retirement or until dependents become financially independent. A common rule is 10–15× your annual income. Insurers often use Human Life Value (HLV) multiples, assessing total cover across all policies against your income and age to avoid over-insurance. For younger individuals, this is typically around 20–30× annual income, with lower multiples applied at higher ages or in cases of unstable income.

3. Human Life Value (HLV) Multiples: Insurers often use HLV multiples, assessing total cover across all policies against income and age to avoid over-insurance. For younger lives, this is typically around 20–30× annual income, with lower multiples applied at higher ages or in cases of unstable income.

4. Number and Age of Dependents: If you have several dependents or young children, your financial obligations are higher. A larger sum assured ensures their needs, like education, healthcare, and daily living costs, are well taken care of.

5. Outstanding Loans and Liabilities: Include all ongoing financial commitments such as home loans, car loans, or personal debts. Your term plan should be large enough to clear these liabilities, so your family isn’t burdened with repayments.

6. Future Financial Goals: Think long-term, funding your child’s education, their marriage, or ensuring your spouse’s retirement security. These future goals should influence how much coverage you choose.

7. Inflation: What feels like enough today may not be enough 15–20 years from now. Inflation steadily increases the cost of living, education, healthcare, and rent can double or triple over time.

To protect your family’s real purchasing power, add a 5–7% annual inflation buffer to your sum assured. Alternatively, you can choose a rising cover term plan, where the sum assured automatically increases by 5–10% every year.

8. Existing Insurance Coverage: If you already have other life insurance policies, like an endowment plan or ULIP, deduct their coverage from your total requirement. However, we do not recommend relying solely on a company-provided term plan, as it is tied to your employment. In cases of layoff, early termination, or switching to self-employment, this cover may lapse, leaving you uninsured. Always verify the duration of such policies and ensure your long-term coverage needs are fully secured.

9. Balance Affordability: While a high cover can offer strong financial protection, it should not strain your budget. As a general rule, your term insurance premium should not exceed about 2% of your annual income. For example, if you earn ₹12 lakh a year, aim to keep your yearly income under ₹24,000. If a ₹3 crore cover pushes you beyond this limit, it may be wiser to scale back to ₹2 crore to ensure sustainability.

However, if you expect your income to grow over time, it can make sense to stretch your budget a little today. Term plan premiums are fixed for the policy’s entire tenure, so while a higher cover may feel costly now, it will remain the same even as your earnings rise. This makes a slightly higher sum assured more affordable in the future and can save you the hassle of upgrading your cover later.

Choosing the right sum assured is about striking a balance, enough to secure your family’s future without overextending your budget. Reviewing your coverage periodically as your income, goals, and expenses evolve ensures continued financial protection.

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Ditto’s Take on Maximum Sum Assured in Term Insurance

Qualifying for a higher sum assured reflects strong financial standing and stable eligibility, opening the door to greater coverage options. However, it is essential to choose a plan that truly matches your family’s needs and potential expenses in your absence. Focusing solely on the maximum eligibility may lead to paying for coverage that exceeds your actual requirement.

Instead, carefully assess your household’s future needs and select a sum assured that strikes the right balance between protection and affordability. This thoughtful approach delivers genuine peace of mind without unnecessary costs.

You can hold multiple term insurance policies, even across different insurers. But insurers consider your total coverage when underwriting new policies. If your combined sum assured exceeds your income-based eligibility, new proposals may be reduced or declined.

Always disclose all existing and past covers, including lapsed policies, rejected applications, or counter offers. Failure to disclose this information can result in future claim denial.

Frequently Asked Questions (FAQs)