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PERSONAL INSURANCE: Term policy should be 15-20 times your annual income

Nowadays, people take life insurance plans as a retirement planning tool to have a constant source of income

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PERSONAL INSURANCE: Term policy should be 15-20 times your annual income
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I bought a life cover of Rs 1 crore from LIC but I will soon be moving to another job that will pay extremely well (almost 50% more). Should I increase the cover immediately considering Rs 1 crore might not be enough in future? If so, what is the best way to increase the cover?

The life insurance cover should be able to ensure that the immediate family has some financial support in the absence of the bread winner. The corpus should finance children's education and other needs. One can derive at an approximate corpus by multiplying the annual income with the time to retirement. Some experts believe that a term Insurance cover should be 15-20 times of your annual income. Industry experts often recommend this simple formula. For example, if your annual income is Rs 10 lakh, then you should get cover for minimum Rs 1.5 crore to Rs 2 crore.

You can increase your life cover by taking another plan which may be a term, endowment or a whole life plan. There are some plans in which you can choose to alter your sum assured based on your protection needs after the lock in period. Usually, there will be no change in your premium amount as a result of the increase or decrease in sum assured opted by you. Increase or decrease of sum assured under these plans shall be subject to the conditions laid down in the product brochure.

Nowadays, people take life insurance plans as a retirement planning tool to have a constant source of income after retirement. There are plans with options to ensure that you have extra income when your earnings are reduced due to serious illness or accident. It is always advisable to take an informed decision before purchasing a life insurance plan.

Anuj Mathur, MD & CEO, Canara HSBC OBC Life Insurance

Clear your doubts with regard to general insurance.  
Send your queries to
personalfinance@dnaindia.net

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