Insurance coverage

How much term insurance you should consider

I am 30 years old and I want to take out term insurance. Should I get it online or from any insurance broker, and for how long?

—Name withheld on request

The design of the term insurance product will remain the same whether you purchase it online or through an insurance broker. In fact, most platforms that sell online are insurance brokers and vice versa. Thus, differentiation in terms of product and process is limited. The main differences are in options, service and price.

First, you should consult an entity that offers several options in a neutral way, without bias towards a single insurer. This would allow you to make an effective comparison. Second, term insurance requires coordination with the insurer at the time of policy purchase to allow for proper underwriting. If the insured has an unfavorable medical history, the back and forth with the insurer is generally high. Make sure your point of contact is the same throughout the process and familiar with the underwriting requirements. Third, if the price difference is more than 5-7%, you can consider the channel that offers a lower premium. You may also want to consider who your candidate would be most comfortable dealing with at the time of the claim.

Term insurance must be purchased to cover your active income years, that is, until retirement. For salaried professionals, the retirement age can vary between 58 and 65 years. It is advisable to purchase coverage for 10 times your annual income.

I’m 37 and I win 1.5 lakh per month. I have three dependents: my wife (35 years old), my son (4 years old) and my daughter (2 years old). I have term insurance of 50 lakh from ICICI Pru till the age of 62. Is this sufficient or do I need to increase the coverage or duration of the policy?

—Name withheld on request

Coverage up to age 62 is good. Most people retire at this time, so there is no active income to replace. Also, at this stage of life, an individual would have gotten rid of major financial liabilities and obligations such as mortgage, children’s higher education, etc. By age 62, chances are you would have built enough retirement corpus to generate passive income. Thus, additional coverage is not necessary.

However, your current coverage amount is low. A rule of thumb is to have coverage for 10 times your annual income. Therefore, you should have coverage of at least 1.8 crore. Consider increasing your term insured sum.

Abhishek Bondia is Senior Director and Managing Director of SecureNow.in.

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