How much Life Insurance coverage do you really need?

Some weeks back, I received a call from my school friend asking me to suggest an Insurance plan which he can buy for his just born child. He was even talking about some children’s plan which a relationship manager had just pitched to him! Probably with rising cost of education, career and future uncertainties in the life of kids and ever increasing troubling period for parents due to job uncertainties force them to get lured into buying these “useless products”. Coming to the point, I had to make an effort to help him understand that there is no such children plan in the market but it is just a marketing gimmick. Ko

A simpler and straight to the point method would be to have a life cover of 10 to 15 times of one’s annual earnings. Let me tell you this is just a thumb rule and cannot be applied to everyone. Life insurance is one such financial product which takes care of your near and dear ones when you’re not around them. This product should never be treated as a money making or an income generating instrument which is usually happening through ULIP and other so called guaranteed plans.

Let’s say you have multiple life insurance policies, but then you should question yourself are you adequately insured? You should know this since in India the majority of the people are still uninsured or underinsured. Just remember a small life cover will not serve the purpose of those who are dependent on you. So, as per the thumb rule explained above, a sum insured should be equal to an amount which should fetch a regular income for the dependants of the insured so that they are able to maintain their lifestyle even if you are not around.

There is also a need based approach through which one can arrive at the appropriate sum insured that one can opt for but then it takes a more customized approach based on one’s assets and liabilities in life.

So in a nutshell, opt for a plain vanilla term plan without any riders added to it so that you get the cheapest available form of insurance in the market. Do not buy a complicated and low yielding ULIP and money back plan available in the market. After all, life insurance is not about making money but about buying peace of mind and taking care of your loved ones when you are not around.