Life insurance is a boon that helps an individual's family cope financially in case something happens to them, especially if they are the family's sole breadwinners. An adequate life cover not only helps with the day to day expenses of the family of the deceased, but also long-term goals such as education and marriage. The necessary insurance amount can change as a person's financial position, income, expenses, family structure and number of dependants change. "Looking at the life cycle of a human being, if one doesn't review the life insurance cover at various stages of life, one might find themselves under-insured, which could pose a challenge to their family when they are not around," says Rakesh Goyal, director, Probus Insurance Brokers. So, what are the various life stages when you should review your insurance position?
When you are single, your basic aim is to provide financial protection to your dependant parents to enable them to enjoy a stress-free retirement. One thumb rule to follow for ideal financial protection at this point is to buy an insurance cover that is at least 10-15 times your annual income.
Marriage brings with it a whole set of fresh responsibilities. "After someone gets married, they need to have an adequate life cover to protect their spouse and family from the risk of premature death of the breadwinner," says Rachit Chawla, founder and CEO, Finway. If you choose to continue with the previous insurance for your parents, you could consider increasing it by at least five times your annual income. Else, you could take a new insurance cover of up to 10-15 times your annual income to protect your spouse
Becoming a parent
With all the joy that children bring comes the responsibility of providing for them. "Insurance coverage needs to be reviewed again when you have kids. It is important to make sure that you will be able to take care of your kids financially," says Chawla. And with rising education costs, you have to ensure that the goal is realised even if something happens to you. To do so, you may need to increase your life cover again by five times your annual income for each child.
Building a house
It is quite common for people of a certain age to take on a home loan to put a roof over their family's heads. Such loans are huge and have long tenures-and a premature death can leave your family unable to pay it back and possibly lose the asset. "An increase in liabilities, like a home loan, serves as a trigger for higher insurance. If you don't review it, the sum assured could prove to be insufficient, and the life insurance plan would be of no use," says C.S. Sudheer, CEO and founder, IndianMoney.com. Therefore, it is important for you to raise your insurance cover by the same amount as your long-term liability.
As people progress in their careers, they also accumulate assets. Their families, therefore, do not need money for building such assets. Some assets, like financial investments and properties, also become a resource to fall back on. The higher the asset value, the lower your family's need for insurance. So, typically from the mid-40s onward, you may not need to increase your life cover as your asset creation can replace insurance, and you can continue with the existing coverage.