Have life insurance of around 10 times your annual income

Published in Mint on 23rd February, 2016, Written by Abhishek Bondia

I am 26 years old and had taken LIC Jeevan Anand Policy (149) in 2015. I pay a premium of Rs.48,018 for a sum assured of Rs.10 lakh. I had planned to surrender the policy after four premium payments but the agent suggested to continue since I would get only Rs.1.50 lakh and would incur a huge loss. Should I continue or surrender?
—Siddharth Mehta

In a traditional endowment plan, the effective return is generally 2-5%. The decision whether to surrender now or hold till maturity would largely depend on the number of years left to maturity. You should do an analysis to see the future value of depositing the current surrender value in a product such as Public Provident Fund. If the value thus arrived is higher than the expected value of the policy at maturity, then you could consider surrendering. Else, you may continue. The advantage of surrendering early is that with a long maturity term, you can recover the losses by investing in a better debt product.

Should I buy life insurance even if my employer has insured me in a group insurance scheme?
—Roshan Singh

Yes, buying an individual life insurance policy is helpful. First, in case you leave the company, your cover remains intact. Second, buying cover at an early age helps you lock a lower premium for the rest of your working life. Third, at a senior age, it becomes increasingly difficult to get a policy, as health deteriorates. You should consider the life insurance benefit provided by the employer as a guaranteed issue, and an additional cushion, over and above your personal life insurance policy. Typically, companies provide 3-5 times of a person’s annual salary as life cover. But the recommended level of cover is around 10 times annual income. If you want to save on premium, you could buy the differential for now, and increase the cover if your employment changes.

Should I consider buying a waiver of premium rider with my life insurance policy?
—Sujan Gupta

A waiver of premium rider essentially waives off the obligation to pay premiums if a specified event happens, such as a critical illness. This ensures that the intended purpose is not disturbed and you receive the same maturity benefits as if you paid all premiums regularly. If for the same specified events, a lumpsum payment option is available, I would recommend it. It gives immediate cash benefit and the flexibility to use or invest the money.

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