Working couples should have separate term insurance covers

Published in Mint on, Sep 25 2012, Written by Kapil Mehta

I want to buy an insurance policy for my wife and daughters aged two and four years. I have an endowment plan for which I pay a premium of Rs.22,000 per annum. What kind of policy should I opt for my wife and kids? My wife earns Rs.35,000 per month.
—Abhishek Kumar

Your first priority should be to make sure that both your wife and you are covered by term insurance for 10 times your respective annual incomes. Your second priority should be to build a corpus for your wife and children. Consider investing in an equity-oriented mutual fund or unit-linked insurance plan (Ulip) with an established track record. However, invest in Ulips only with a long-term view.

I am 29 years old and have no dependants. I want to buy a term plan of around Rs.75 lakh as I intend to get married in a few years. I believe the premium will increase when I turn 30. Do you think this approach is correct? Should I buy riders, too?
—Lakshya

Your approach is sensible. You should buy term insurance to provide security for your future family and also parents who may be dependant on you. The term insurance sum assured should be about 10 times your annual income so I am assuming you have an annual income of around Rs.7.5 lakh. The term plan will cost you about Rs.10,000 per annum for 30 years.
I would recommend that you purchase a critical illness rider as well. Purchase a critical illness sum assured of at least Rs.5 lakh. This will cost you about Rs.2,500 per annum and is a cost-effective way of insuring yourself against critical ailments such as cancer, heart attack and paralysis, among others.

My brother got married two years back and plans to have a kid next year. However, he wants to be adequately insured before the birth. His wife is also working and they together earn around Rs.60,000 a month. What type of life insurance cover should they go for and what should be the cover amount? Should his wife go for a separate cover for herself?
—Vanita Singh

Both husband and wife should purchase term insurance since both are contributing financially to the home. In term insurance, a benefit is paid to the nominee only if the insured dies during the product term. This is the most important and cost-effective way of purchasing insurance.
Insurance cover should be about 10 times the annual income. If I assume that both husband and wife have similar incomes then each needs to have Rs.36 lakh of cover.

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