Term Insurance in Nepal: How to decide the actual coverage you need?

As we discussed earlier, most people in Nepal either buy too little life insurance… or the wrong type. The real question is not whether you need term insurance or not but “How much coverage is enough?” o in simple terms- “How much term insurance is actually enough for your family?”
And honestly, this is where most people either buy too little coverage that won’t support their family, or they overpay for a plan they don’t actually need. But first, let's simply understand Term Insurance

What is Term Insurance?

Term insurance is a pure life cover. In other words, this plan provides only protection and no maturity benefit. It means:
You pay a fixed premium every year
Your family gets a lump sum amount (sum assured) if something happens to you during the policy term.
If you survive the term, there is usually no maturity payout (unless it’s a return of premium plan)

If you want to know more about “Return of the premium plan” click here to read the article.

In short, Term Insurance is the cheapest way to get high life coverage.

How Much Term Insurance Do You Actually Need?

A general rule of thumb used by financial planners is- Coverage = 10 to 15 times your annual income

However, if you are unsure about the coverage you must take, you can also use a simple calculation to decide your coverage amount.

Step 1: First add all your yearly expenses

In every household there are some of the common expenses. Some of these common expenses are-
1.Household Expenses
2.Children's education
3.Rent or home loan
4.EMI
5.Daily living costs

Now let's calculate these expenses

Yearly expenses= (40,000 +20,000+20,000+20,000) *12

Note: First calculate the monthly expense then convert it into yearly expense.

Here, Yearly Expense= 100,000*12= 12,00,000 NRs

Step 2: Create a Family Fund Expense

This step is about estimating how long your family would need financial support if you are not around. Or in simple words- if your income stops today how many years can your family continue their current lifestyle?

Family Fund= (Yearly expense *10 or 15)

Why the exact 10–15 years tenure?
1.It gives your family enough time to adjust financially
2.Covers major life goals like children’s education, marriage, loan repayments
3.Replaces your income during the most financially dependent phase

From earlier,
Yearly expense = Rs 12,00,000 then,
For 10 years - total family fund required= 12,00,00010 = 1.2 Crore
For 15 years- total family fund required=12,00,00015= 1.8 Crore

So, this amount becomes the base life cover for your Term Insurance Policy i.e. which means you need 1.8 crore coverage to support your family for 15 years in your absence.

Step 3: Add all your major liabilities

After calculating your family expense fund (from Step 1 & 2), you now add future financial burdens your family might have to pay or in other words -liabilities

What are liabilities?
These are debts or obligations that don’t disappear if something happens to you. Some of the common liabilities are-
1.Home loan
2.Personal loan
3.Business loan
4.Car loan

From earlier:
Yearly expense = 12,00,000 NRs
For 15 years = 1.8 crore NRs

Now assume:
Home loan remaining = 50,00,000 NRs
Personal loan = 10,00,000 NRs
Total liabilities = 60,00,000 NRs

From earlier,
Family Fund required= 1.8 crore

1.8 Crore +60,00,000 Rs (Total liabilities)= 2.4 Crore

As liabilities grow, the coverage amount also increases. But will your family just have expenses and liabilities? Of course they would also have income or savings, wouldn't they?

Step 4. Subtract existing savings/investments

This brings us to our last step where we reduce the financial burden with little of what our family has-
1.Fixed deposits
2.Savings account
3.Property
4.Other insurance cover
5.Other investments (Stocks, Gold, Silver)

Let’s say you already have:
Fixed deposits = 10,00,000 NRs
Savings/investments = 25,00,000 NRs
Existing insurance = 5,00,000 NRs

Total savings = 40,00,000 NRs
Final Coverage needed = (Total Expenses * Dependency tenure)+ Liabilities- Savings

From earlier,
Coverage needed= 2.4 Crores- Savings
2.4 Crore-40,00,000= 2 Crores.

Hence, the final coverage needed for Term Insurance= Rs. 2 Crores

Why does this method work?

Covers daily living expenses
Clears all debts
Uses your existing assets smartly
Avoids overpaying for unnecessary coverage

Common Mistakes People Make

1.Choosing low cover like 10–20 lakhs (not enough today)
2.Ignoring inflation
3.Not including loans
4.Buying endowment plans instead of term insurance
5.Delaying purchase (premium increases with age)

When Should You Buy Term Insurance?

The best time is: When you start earning or have dependents
Because:
1.Premium is lowest when you are young
2.Health risks are lower
3.Higher chance of approval

Term insurance is not an investment—it is financial protection for your family.Think of it this way:“You are not buying term insurance for yourself. You are buying financial stability for the people who depend on you.”

If you are unsure about the right cover, comparing plans and using a Term insurance coverage calculator here at Sajilobima.come can help you make a smarter decision