MUMBAI: How much life insurance you need depends on your income, liabilities and dependents. The
thumb rule, financial experts say, should be at least 10-15 times the annual income.
Other factors that need to be taken into consideration are loan repayments and monthly expenses. A
recent study by global reinsurer Swiss Re showed that despite life insurance premiums rising 7.8% in 2015, life insurance
penetration is still low. The report estimated that for every $100 needed for protection, the average Indian household spends
only $7.8, leaving a massive protection gap.
This gap, despite high sales of insurance, is due to Indians preferring investment-linked
insurance plans such as endowment plans or unit-linked insurance plans over pure protection plans such as term plans.
The protection element in these investment-cum-insurance plans is not big enough to meet the needs
that pure term plans serve.
"The basic principle is that life insurance cover should be big enough to generate income that can
take care of the expenses of the family if something untoward happens to them," said an executive at an insurance
"Under income replacement plans with increasing income, an insurer pays surviving dependents a
one-time corpus and an increasing monthly income. This helps cope with the effects of inflation.
"Take the example of a 30-year-old person with a term plan having life cover of Rs 1 crore and a
home loan of Rs 50 lakh.
"In case of his demise, the entire life cover of Rs 1 crore will be paid as death benefit to the
dependents. Out of this, Rs 50 lakh can be used to take care of the home loan liabilities and the rest for the family's
"There are various kinds of term plans. In some cases, the insured amount is linked to inflation
and in others, the payout is spread over a period of 10-15 years.
"There are also plans that return the premiums paid during the term. However, people are
increasingly buying plain vanilla term plans online.