Sum assured using income replacement plus liabilities.
Recommended cover
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Income to replace
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Loans added
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What a term plan is really buying for your family
Term life insurance is the cheapest, cleanest form of cover you can hold. You pay a level premium for a fixed term, and if you die inside that term your family receives a single lump sum, the sum assured. There is no maturity payout and no investment pot, which is exactly why the premium is low. The only hard question is how large that lump sum should be. Set it too low and your family is short of money in the years they can least absorb a shock. Set it too high and you are paying premiums for cover nobody will ever draw on. This tool answers the sizing question with the income-replacement method, the same logic most agents and SECP-regulated insurers in Pakistan use as their opening estimate.
The three numbers that decide your sum assured
The calculation is deliberately simple so you can see every moving part. It rests on three ideas. First, your family loses your income, so the plan replaces your annual earnings for a chosen number of years. Second, any debt you leave behind still has to be repaid, so outstanding loans are added on top. Third, whatever cover you already hold, through an employer group policy or an existing personal plan, reduces what you still need to buy. In formula terms the tool computes income times years, adds your loans, then subtracts existing cover, and floors the result at zero so you never see a negative figure.
Working through the default family
Take the figures the page loads with: an annual income of PKR 3 million, a ten-year replacement window, PKR 2 million of outstanding loans, three dependents, and PKR 1 million of cover already in place. Replacing the income gives PKR 30 million across the decade. Adding the loans brings the total to PKR 32 million. Netting off the PKR 1 million you already hold leaves a recommended sum assured of PKR 31 million. That is the headline figure the tool returns.
| Step | Working | Running figure |
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The chart below shows how those layers stack into the final number. The bulk is income replacement, loans add a slim band on top, and the small existing-cover slice is what comes off.
Where straight multiplication can mislead you
This method is a strong starting point, but it ignores two real-world forces. It does not account for inflation, so the PKR 30 million that looks ample today buys noticeably less in year eight as prices rise. It also treats the lump sum as if it simply gets spent down, when in practice your family would invest the payout and it would throw off its own return. Those two effects pull in opposite directions, which is why the method works as a sensible middle estimate. My practical tip: pick a replacement window that matches a genuine milestone, such as the years until your youngest child finishes university, rather than a round number like ten. A common mistake is double-counting cover that lapses when you leave a job, since an employer group policy usually ends with the employment. Treat it as existing cover only if it travels with you.
Who should use this estimate
This is built for a single earner whose income supports dependents and who wants a defensible number to take to an insurer, not a precise actuarial quote. If you have no dependents and no debt, your need may be close to zero. If you support ageing parents as well as children, lengthen the replacement window rather than inflating the annual income figure.
Does term insurance pay anything if I outlive the policy?
No. Pure term cover has no survival or maturity benefit, which is the trade-off for the low premium. If you want money back at the end you are looking at an endowment or unit-linked plan, which costs far more for the same death benefit. Most families are better served buying term and investing the difference separately.
Should I add future education costs into the figure?
If they are large and not already covered by the income replacement, yes. One clean way is to treat a known education target as an extra liability, the same way the tool treats loans, so it is added to the sum assured rather than buried inside the annual-income multiplier.