How much cover should I take in a term insurance plan at the age of 40?

I earn 2 lakh per month at the age of 40 years. I have three dependent on me – my wife, my six-year-old son, and my one-year-old daughter. I currently have a term insurance cover of 75 lakh from ICICI Pru, which will get over at the age of 65. Please advise if it is sufficient insurance or should I increase the policy period or insurance cover?

-Name withheld on request

The 75 lakh sum assured with coverage till 65 is not sufficient for you after seeing your monthly income, which is 2 lakh per month. It is generally recommended to provide coverage at 10-15 times the annual expenses. Other factors are also taken into consideration before buying term insurance. For example, the most difficult situation one can leave their family is with a pile of debt. If someone has an outstanding home loan, which is his primary burden that needs to be taken care of, assess important life events and goals, consider a retirement corpus for your spouse, factor in your existing wealth, etc.

While in your case, a multiple of 10 times is suggested to account for higher inflation, rising education costs for his children, and the healthcare costs for your parents. At a multiple of 10 times, your coverage based on future household expenses would be 2.25 to 2.5 crores.

Now coming to the second query for a correct term of insurance – Given the rise in longevity and earning horizon, there is a need to look at the pure term protection plan as an income replacement and a form of legacy planning. With the changing lifestyle and longevity, long-term coverage helps in income replacement and legacy and estate planning, so it is advisable to buy long-term insurance until age 100.

Query answered by Sanjiv Bajaj, joint chairman and MD, Bajaj Capital. 

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