Life Premium Rule

A thumb rule which is a way to budget for insurance is to use the benchmark allocating 6% of gross income towards buying life protection. To this 6% an additional 1% should be added for each dependant. A point to be noted is that life protection here refers to pure term insurance, policies which provide only death cover without any savings element.

For example , if we assume that a professional  has one wife and one children dependant on him, then the premium payable towards life insurance is [ (6% +2%)* Annual income].

How much insurance cover he gets would depend on the cost of insurance.