Life cover should be 10 times a person’s annual income

Published in Mint on 27th Jan 2015, Written by Abhishek Bondia

I cannot afford the life cover I require. Can I do anything to lower the cost?
—Rakesh Gulati

It is advisable to take a life cover that’s 10 times a person’s annual income. For a 30-year-old, the premium works out to be less than 0.1% of the coverage taken. So, if you even take the full recommended cover, it amounts to 1% of your annual income. If you are finding that unaffordable, you may be looking at an exceptionally high cover. You could reduce the sum assured or term of insurance. Premium is lower for shorter terms. The shortest term for which insurance is available is 5 years.

I have taken a loan of Rs.1 crore from a bank. It suggested that I purchase a loan insurance. Please explain what it is.
—Mayank

Loan insurance can cover four risks—death, disability, critical illness or job loss. In case of death, disability or critical illness, the insurer will repay the loan. For job loss, the insurer pays a few months of instalments on your behalf. Death cover is the first priority. Most banks will offer you a credit shield life cover along with a loan. These are reasonably priced and are often financed by the bank itself. Banks will offer you products covering the other risks as well.


How do I assign a policy or transfer a life insurance policy?
—Simmi Bodra

To assign a life insurance policy, you need to fill the assignment form of the respective insurer and deposit your original policy bond. On receipt of these documents, the policy is assigned. On assignment, the assigner forgoes all her rights, title and interest in the policy to the assignee.

Is there a cap on the amount of life insurance a person can get?
—Ved

The cap on amount of life insurance is not a stipulated guideline but is based on underwriting practices. Typically, insurers are comfortable insuring up to 10 times a person’s annual income. In special cases, such as keyman insurance, one may take higher cover based on company profits.

My life insurer cancelled my policy mid-term saying that my fund value has lapsed. Can they legally do it?
—Venky P.

Insurers can cancel a plan if the fund value is insufficient to pay for charges. In some of the earlier plans, insurers also set a relatively high threshold below which the policy lapsed. But the insurer must give you adequate notice before cancelling the insurance.

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