How much cover do I need?
The most common method is the income replacement method: cover should be 10–15× your annual income. A better method is:
The FD Method (Human Life Value approach)
- 1. Calculate how many years your family needs income support (e.g. until youngest child earns = 25 years)
- 2. Calculate monthly household expenses (e.g. ₹60,000/month = ₹7.2L/year)
- 3. Cover = Amount that, if put in FD at 6% returns, generates that annual income forever
- 4. ₹7.2L ÷ 0.06 = ₹1.2 crore cover needed
- 5. Add outstanding loans (home loan, car loan) to this amount
| Annual income | Rule of thumb cover | FD method (25yr need) |
|---|---|---|
| ₹5 lakh | ₹50–75 lakh | ₹70 lakh |
| ₹10 lakh | ₹1–1.5 crore | ₹1.4 crore |
| ₹20 lakh | ₹2–3 crore | ₹2.5 crore |
How long should my policy run?
Your policy should run until your financial dependants become self-sufficient and your major liabilities (home loan) are paid off. Minimum recommendation: until age 65. If you are 30 now, buy a 35-year term.
Riders Explained
- Critical Illness Rider: Pays a lump sum on diagnosis of cancer, heart attack, stroke etc. — even if you survive. Useful supplement to the base cover.
- Waiver of Premium (WoP): If you become permanently disabled and can't earn, future premiums are waived but coverage continues. Very valuable — always add this.
- Terminal Illness Rider: Pays part of sum assured immediately while alive if diagnosed with terminal illness. Allows using the money while you are still alive.
- Accidental Death Benefit: Extra payout if death is due to accident. Less important if your base cover is already adequate.
Return of Premium — Is It Worth It?
Return of Premium (ROP) plans give back all premiums paid if you survive the policy term. Sounds great — but the premium is 2–3× higher than a regular term plan.
Why ROP usually isn't worth it
If you buy a regular plan and invest the premium difference in an index fund at 12% CAGR, you'll have significantly more than the return of premiums at maturity. The "free return" is really just a forced savings scheme with mediocre returns built in.
What Causes Claim Rejection?
- Non-disclosure / mis-statement: Not disclosing a health condition, smoking habit, or dangerous occupation. This is the #1 reason.
- Suicide within 1 year: Most policies don't cover suicidal death in the first 12 months
- Policy lapse: Premium not paid → policy lapses → no claim
- Nominee not updated: Nominee as per records is deceased; claim goes into legal dispute
How Does the Claim Process Work for Nominees?
- Nominee intimates the insurer immediately after the policyholder's death
- Submit: Death certificate, original policy document, nominee ID proof, claim form
- Insurer verifies cause of death and policy terms
- Settlement within 30 days of receiving complete documents (IRDAI mandate)
- Amount paid directly to nominee's bank account — 100% tax-free under Section 10(10D)
Ensure your nominee knows the policy number, insurer name, and sum assured. Consider leaving instructions in a sealed envelope or using a will.
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