How much would you spend for peace of mind? The kind of assurance that comes from knowing that even if something happened to you, your loved ones will not face any financial difficulty.
If you are around 30 years old and earn about Rs 50,000 a month, you can buy this peace of mind for about Rs 4,250 a year. For less than the price of a soft drink a day, you can be insured for four times your annual income. This is the bare minimum insurance cover that experts recommend.
The implications of this arithmetic is not lost on Gwalior-based Deepak Kumar. The 29-year-old bank executive has no financial dependants right now, but will have one when he marries next year. This is why a term plan figures high on his New Year's shopping list. He already has a Ulip, but the cover offered is so little that you need a magnifying glass to spot it.
"I realise that the Rs 1.5 lakh cover offered by my Ulip is insignificant compared with what I need. I had bought the Ulip to save tax," explains Kumar.
This is the most common reason for buying life insurance. It's about time this mindset changed. In the coming years, Kumar may not get any tax benefit for the Rs 30,000 he shells out every year for an insurance cover of Rs 1.5 lakh.
The new Direct Taxes Code (DTC), which is pending before Parliament and is likely to come into effect from April 2012, may change the rules of the game. Tax deduction will be available only if an insurance plan offers a cover of at least 20 times the annual premium. Not many people share Kumar's eagerness to be on the safe side.