I’m 40. How much term insurance cover should I have?

I’m 40 years old. I’m concerned about the financial impact of increasing my insurance coverage. I already have a term insurance policy of Rs 50 lakh, but I want to update it to ensure adequate coverage. My spouse and two kids depend on me. What should I do?

Name withheld

Reply by Naval Goel, Founder and CEO of PolicyX.com

As a 40-year-old professional, it’s crucial to secure a family’s financial wellbeing, lead a stress-free life and plan for a secure future. Quality insurance coverage is a robust economic base, providing safety in unpredictability. However, the thought of ‘increasing insurance coverage’ often raises concerns about the potential financial impact of disruptions on our existing monetary landscape.

You can buy another term insurance policy or a new one from your existing insurance provider. Purchasing a secondary term plan will add to your sum assured, but it will also lead to a twofold premium payment. Your secondary-term insurance policy premiums will be calculated based on your Human Life Value, using age and income multiplier, and that varies from one insurer to another. You can add riders to your second term plan and options such as Term Return of Premium Rider to get back your premiums if you outlive your second-term policy or choose a zero-cost term insurance (special-exit value) plan with a withdrawal benefit. In this way, you can discontinue your second-term policy mid-way if you feel no more major liabilities to pay for. The minimum policy term for zero-cost term plans usually ranges from 25-30 years, but this varies from insurer to insurer.

Since top-ups cannot be bought in the case of term insurance, purchasing a second term insurance policy will enable you to have the pool of sum assured of both policies under the Principle of Contribution in Insurance. The eligibility criteria in such cases include being in the age gap, having no pre-existing conditions, being a salaried individual and having a listed pincode i.e. insurable zone. If your first term policy doesn’t have sufficient sum assured, you can opt for a high sum assured second policy. Still, it can prove to be expensive, so it is advised to be sufficiently insured rather than opting for a huge amount and paying hefty premiums for it.

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