Q. I have a life insurance policy with a Rs 10 lakh cover. My dependents include my wife, daughter, and father. I earn Rs 40,000 per month. My advisor suggested that the life cover is not sufficient, and at my age (37 years) with three dependents, I should increase the cover to Rs 50 lakh. Please advise me on the right amount of life insurance coverage. Also, which type of insurance policy should I buy?
Ans. The amount of life insurance coverage (sum assured) that you require depends on various factors, such as your current financial obligations, future expenses, and your family’s needs. Different methods could be used to determine the life insurance cover required – Human Life Value (HLV), Income or Expense Replacement method, etc. A common guideline is to have a coverage amount of 10-15 times your annual income. In your case, considering your monthly income, Rs. 50 lakh might be a reasonable suggestion.
Term life insurance is often recommended for its simplicity and affordability. It provides coverage for a specified term and would pay a death benefit to your nominee (nomination is extremely important) if anything were to happen to you. This would ensure that your dependents /loved ones are protected financially, even in your absence.
Q. My wife (61 years) and I (65 years) have both worked our entire lives and built a corpus of Rs 4 crore. We don’t have children. While we each have enough health insurance, my life insurance policy ended last year. Do I need to buy a life cover at this stage?
Ans. At your current stage in life, the need for life insurance may be reduced, especially if you do not have dependents. However, there are other factors to consider. If your spouse could face financial challenges in your absence, a life insurance policy could provide support. Also, if there are outstanding debts or you want to leave a financial legacy, life insurance might be beneficial. Evaluate your specific circumstances and consult with a financial advisor to determine if purchasing a life insurance policy aligns with your current financial goals.
Q. I purchased a 20-year term insurance policy, which will mature this year. Now that I am 50, I want to extend it for 10 more years. Is it possible to do so, or will I have to buy a new policy? Will the premium increase in the new policy or the extended one?
Ans. Typically, term insurance policies do not have an option to be extended beyond their initial term. You may need to purchase a new policy if you want coverage for an additional term. However, keep in mind that premiums for a new policy are likely to be higher due to your age. It is advisable to contact your insurance provider to discuss your specific situation and explore available options.
The author is the head of products and segments of HDFC Life.