Ask Mint | Term plans: a simple form of life cover

Ask Mint | Term plans: a simple form of life cover
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First Published: Sun, Mar 01 2009. 10 29 PM IST

Updated: Sun, Mar 01 2009. 10 29 PM IST
The insurance business in India isn’t just growing, but also becoming more sophisticated in terms of product offerings. To help readers keep ahead of developments in this business, Mint features a Q&A on insurance every Monday.
I am interested in buying a life insurance plan. How do I decide the cover amount I should opt for? I am married and have a three-year-old son.
Based on your income, your age and family details, there are multiple options available for you to decide your cover level. The most common methodology is the concept of “human life value” calculation. Simply speaking, this calculates the total income the individual is expected to earn over the remainder of his working life, expressed in present rupee terms.
Another way to calculate this is to also take into account the monetary value of all the yet-to-be fulfilled needs of dependants plus all outstanding liabilities. This methodology takes into consideration the life expectancy of the spouse, cost of child upbringing, likely medical expenses, outstanding loans, household expenditure, etc. These calculators are available on mostly all financial planning websites.
I am looking at investing in a low-cost insurance plan for pure protection purposes. My agent has advised me that I could invest in a term plan. What is a term insurance plan?
Term insurance plans offer pure protection without any investment element. As such, it is one of the simplest forms of life insurance. A person can buy term insurance that covers till the person reaches a certain age, which is usually 60-65.
Term insurance policies cannot be extended at the end of the term.
If the policyholder dies before the term ends, the beneficiaries will get the sum assured. If the policyholder is still alive at the end of the term, the policy expires and there is no payment.
Readers are welcome to write in with their queries to askmint@livemint.com. The questions will be answered by senior executives from leading insurance firms.
This week’s expert is T.R. Ramachandran, managing director and CEO, Aviva India.
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First Published: Sun, Mar 01 2009. 10 29 PM IST