The answer in one minute
Your term cover should replace the financial value your family loses if you are not there. A multiple of annual income is a useful sense-check, but it is not the calculation.
Start with the money your family would need for living costs, loans and major goals. Then subtract assets already available for those needs.
A practical framework
1. Replace income
Estimate the annual amount your dependants need and how many years it must last. Account for inflation rather than multiplying today’s expense by a flat number.
2. Clear liabilities
Add home loans, education loans and other debts that should not transfer to your family.
3. Fund major goals
Add the future value of goals such as children’s education, dependent care and essential family commitments.
4. Subtract useful assets
Subtract liquid investments and existing life cover that are genuinely available to your dependants. Do not automatically subtract the home they live in or retirement money a surviving spouse will need.
Cover the right term
The policy should usually run through the years your income supports others. Covering far beyond the working years can make the premium heavier without solving a real dependency.
The claim-safety check
The right number is only half the job. Medical history, smoking, alcohol, occupation, income and existing cover must be disclosed accurately. A smaller honestly disclosed policy is safer than a larger policy built on an incomplete proposal.