India is underinsured country. As a society, we don’t give much relevance to our insurance needs. We don’t take insurance policy purely for insurance purpose. We might have taken a policy for tax saving purpose.
People also don’t gave an idea how much insurance coverage they have. All they say, ‘I pay Rs 35, 000 every year. I think the agent told I will get 10 lakhs after 15 years.” And your insurance agent is the best agent in Chennai.
Neither of the above represent insurance ‘cover’. Insurance cover is the sum of money your family will receive if you die. Yes, let’s be open about it… when you die
How much insurance cover you need depends on how much money your family will need to lead same quality of life even if you don’t wake up tomorrow morning. Generally people in western countries recommend 10 year annual income.
But in Indian context you should have at least 5 year income as life insurance coverage. If your monthly income is Rs 50, 000 then have insurance cover for at least 50, 000 X 12 X 5 = Rs 30, 00, 000 (30 lakh).
The hope is, the family will manage with this money for 5 years and become financially dependent to be on their own.
Regular endowment plans that come from LIC won’t serve this purpose. We need to go with term insurance policies in India.