Understanding Underinsurance in Middle-Class Families

For many Indian families, buying a term plan once in their late twenties or early thirties feels like a permanent solution. A cover of Rs 50 lakh or Rs 75 lakh looked more than adequate a decade ago and often matched the income and lifestyle of that phase of life. The problem is that life did not stay the same. Incomes grew, expenses rose, children arrived, loans increased and inflation kept lifting the cost of everything from schooling to medical care. The original cover stayed frozen while the financial responsibility grew many times over.

How inflation quietly erodes an old term plan

A Rs 50 lakh cover bought 10 years ago does not carry the same weight today. With the rising cost of living, that amount can support a family for a much shorter period than originally expected. School fees, healthcare, housing and day to day spending have all become more expensive. When you place today’s costs against the value of that old policy, the gap becomes obvious. A cover that once felt generous might now replace only four or five years of income, which is far below what a young family would need if something were to go wrong.

What a typical middle-class family actually needs

Most financial planners agree that a family needs a cover of at least ten to fifteen times annual income, sometimes higher if there are long term goals such as children’s higher education or a large home loan. For someone earning Rs 15-20 lakh a year, that easily points to a cover of around Rs 1.5-3 crore. Many households fall short of this number simply because they have not reviewed their plan for years. The mismatch grows each year as inflation lifts costs but insurance cover remains unchanged.

Why regular upgrades matter

Updating a term plan does not need to be a complicated exercise. Every few years, or after major life changes, it helps to reassess income, expenses, dependents, liabilities and future goals. If the existing plan is far below what new calculations suggest, a top up policy can fill the gap. Premiums are higher than they were a decade ago but still affordable for most salaried individuals, especially when bought early. Thinking of term insurance as a one-time purchase is what creates the protection gap. Treating it as a financial tool that evolves with your life keeps the family safer.

Key takeaway

The right term cover protects your family for many years, not just at the time you buy the policy. Inflation and growing responsibilities slowly weaken older plans, making regular reviews essential. For most middle-class households, a higher cover today is not a luxury but a realistic reflection of how expensive life has become.

Frequently Asked Questions

How do I calculate the right cover for my family today?

A simple way is to take 10 to 15 times your annual income and then add any large liabilities such as a home loan. If you have young children, include the cost of their higher education as well.

Should I cancel my old policy and buy a new one?

You do not need to cancel an older policy if the premiums are low and the terms are favourable. You can keep the existing plan and add a second policy to reach the required total cover.

Is a higher cover worth the extra premium?

Yes, because the purpose of term insurance is income replacement. A cover that is too small defeats this purpose. Paying a slightly higher premium now can spare your family from major financial stress later.