Answer

1. F

   Facts

   The most important financial decision most Indians get wrong. Too little: family is stranded. Too much: wasted premium. The right cover is calculated, not guessed. Rule of thumb is outdated. Use income replacement method plus liability coverage for a precise number.

2. P

   Provisions and law

   • Sec 123 (old 80C)
   • Sec 11 (old 10(10D))
3. A

   Analysis

   Income replacement method (the right way): Step 1: Take your annual income (say ₹12L). Step 2: Multiply by years remaining to retirement (say 30 years). Step 3: Apply present value factor at 7% inflation discount (approximately 14× for 30 years). Step 4: Add outstanding liabilities (home loan ₹40L, car loan ₹5L). Step 5: Subtract existing assets (savings ₹10L, existing policies ₹20L). Formula: ₹12L × 14 = ₹1.68Cr + ₹45L liabilities − ₹30L assets = ₹1.83Cr. Round up to ₹2Cr cover. Common mistakes in calculating cover: Using the old "10× income" rule: ₹12L × 10 = ₹1.2Cr. But inflation at 7% means ₹1.2Cr today equals ₹61L in 30 years in real terms, not enough. Second mistake: not including liabilities. A ₹50L home loan must be separately accounted, family still needs to service it. Third: not reviewing every 5 years.

4. C

   Conclusion

   1. 1Calculate income replacement need: annual income × 14 (30-year horizon) or × 10 (20-year horizon)
   2. 2Add outstanding loans: home loan balance + car loan + education loan + personal loan
   3. 3Subtract existing cover: current policies + employer group term + EPF corpus
   4. 4Round up to nearest ₹50L, buy that amount of pure term insurance
   5. 5Compare online: Policybazaar, InsuranceDekho, Ditto, get at least 3 quotes
   6. 6Choose: LIC term plan + one private (ICICI/HDFC/Max), split ₹1Cr each

General guidance from TaxSavvy’s library of money processes. Laws change; your Savvy confirms the answer on your exact case before anything is filed.