What coverage should I take out in term insurance at age 40?

I win 2 lakh per month at the age of 40. I have three dependents – my wife, my six-year-old son and my one-year-old daughter. I currently have term insurance coverage of 75 lakh from ICICI Pru, which will end at the age of 65. Please advise if this is sufficient insurance or do I need to increase the insurance period or insurance coverage?

-Name masked on request

The Sum of 75 lakh insured with coverage till age 65 is not enough for you after seeing your monthly income which is 2 lakh per month. It is generally recommended to provide coverage at 10-15 times annual expenses. Other factors are also taken into consideration before purchasing term insurance. For example, the most difficult situation one can leave to one’s family is a lot of debt. If someone has an outstanding home loan, which is their primary expense to take care of, assess significant life events and goals, consider a retirement corpus for your spouse, consider your existing wealth, etc

Whereas in your case, a multiple of 10 is suggested to account for rising inflation, rising school fees for his children, and health costs for your parents. At a multiple of 10, your coverage based on future household expenses would be 2.25 to 2.5 crores.

Now coming to the second question for a correct term of insurance – In view of the increase in longevity and the earning horizon, it is necessary to consider the pure term protection plan as an income replacement and a form of estate planning. With changing lifestyles and longevity, long-term cover helps with income replacement and inheritance and estate planning, so it is advisable to purchase long-term insurance up to the age of 100 years.

Question answered by Sanjiv Bajaj, Co-Chairman and Managing Director of Bajaj Capital.

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