Insurers are talking mostly about purchasing at least Rs 1 crore term cover. Some are now talking about Rs 1.5-2 crores cover. Traditionally, Indians were used to buying some money back policy or traditional plan of Rs 5-10 lacs cover and we thought we were insured. How do you go about figuring out how much Insurance do I need? And what according to you is the right amount for say a 30 year old young professional.
The intent of term insurance is to provide the financial support for your family in your absence. Ideally, it must hence provide them the same standard of life and thus similar income to what you offer them today and for as long as you are expected to be financially productive. The ideal coverage is thus a multiple of your current annual income which accounts for (1) average increments and promotion that you may get, (2) is adjusted for number of dependents you are expected to have and (3) is not more than 15-20x as it may balloon up into a very high amount and consequently costly for you today. For someone as young as a 30 year old, we note that there can be another 30 years of financially productive life and thus adjusting for both of above factors, an ideal coverage would be about 15 times the current annual income. The minimum recommendation should be for at least 10 times. One can get more information about adjusting this number a little further based on inflation etc by speaking to our advisor.