I am 34 years and work as a bank manager (no outstanding loans). My family includes my wife, five-year-old daughter and one-year-old son.

I wish to insure my life against any untoward incidents. Below are my existing insurance policies.

Please advise whether I require more insurance coverage. If so, please suggest a few products suitable for my profile.

George Augustine K

The breadwinners of a family should necessarily have a life insurance cover. As a thumb rule, the life insurance cover should be 20-30 times the annual income for those in your age group if they have high financial commitment.

For those in their 40s, life insurance can be 10-20 times the income, and for those above 50, 5-10 times the annual income.

 

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You have said that you do not have any outstanding debt. Do keep in mind that the moment you buy a house, you — or your family, in your absence — has to be shoulder a large financial burden.

A life insurance policy should make up not just for the loss of the breadwinner’s income but also cover any outstanding loan. So, when you take a home loan or any other debt, increase your insurance cover, too, by the same extent.

Your current risk coverage is too less. We suggest that you buy a term cover. A term life cover is a plain-vanilla life insurance policy with a very cheap premium.

These plans pay out the sum insured as a lump sum on the death of the policyholder. In term plans, the premium, even for a large sum insured (say ₹50 lakh/1 crore), is nominal. For instance, for a 30-year-old male, the premium for a ₹1-crore sum-insured policy is ₹13,000.

SBI Life Smart Money Back is a traditional endowment plan that combines insurance and investment. The risk cover in endowment plans is small relative to the premium they charge.

Given your young age, you should build wealth through equity products (via mutual funds) rather than through insurance policies, which are low-risk, low-return investment tools. Endowment plans do not normally give more than 5-6 per cent returns.

LIC Bima Gold is also a money-back plan. A percentage of the sum assured is paid back in regular intervals on survival; on death, the sum assured is paid as a lump sum. However, if you calculate its IRR (internal rate of return), it will be not cover even long-term inflation.

Exiting endowment plans in the initial years of the policy may cost you dear as these policies are front-loaded on charges. Find out the surrender value of both your policies from the insurer before you make a decision to exit the plans. Compare the surrender value with the premium amount you have paid so far, and accordingly take a call. Among term life covers, you may look at policies of LIC, Max Life or HDFC Life as these have high claim-settlement records. If you are looking for plans with the lowest premiums, you can search on online insurance aggregators.

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