Is there a limit to how many term insurance plans I can take? My annual salary is 26 lakh and I have a home loan EMI of 40,000. Is it possible for me to take multiple term plans amounting to 10 crore?

—Narayan Dev

No, there is no limit on the number of term insurance plans that you can take. You can opt for the desired coverage under one plan or multiple term plans. However, when opting for multiple term insurance plans, you need to disclose existing term plans that you have in your name. This is required for financial underwriting done by the insurer.

Insurers typically do not offer a term cover for more than 20 times a person’s annual income. The aggregate sum assured across all life insurance should not cross this threshold. Based on your annual salary, you would be eligible for an aggregate sum assured of 5 crore. For ease of administration, you can apply for this coverage amount under a single policy itself. You can then try to enhance this coverage thereafter.

In case you do not get the additional coverage, you can apply in a few years. Increase in income will enable higher coverage. An alternate way to enhance coverage will be through a personal accident insurance. This will cover death due to accident, and permanent disabilities. The sum assured of personal accident and life insurance are underwritten independently.

How do I determine a fair life insurance premium? I am 36 years old and smoke and drink occasionally. Please also suggest a few schemes.

—Ved Ganguly

The budgeting for a term insurance is done on the basis of sum assured requirement rather than premium outgo. Term plan is significantly cheaper than endowment and unit-linked plans. So, the premium as a percentage of a person’s annual income is low. It is advised to have a sum assured of at least ten times of your annual income. This can be further enhanced based on existing financial liabilities. The fundamental benefit structure across insurers for term plan is similar. You should first shortlist insurers with at least 90% claim settlement ratio and then opt for the insurer with the lowest premium. Do declare upfront that you are a smoker to get accurate premiums as insurers generally charge between 50-100% higher for smokers.

What is better—a health policy that has in-built cover for cancer, or a stand-alone insurance?

—Praveen Sarkar

The standard health insurance policy covers cancer automatically. Hospitalization and day care treatment expenses to treat cancer get covered in this plan, the stage of cancer notwithstanding. You must buy this standard health plan. This will give you a broad comprehensive coverage across several illnesses.

A stand-alone cancer policy or a critical illness plan that covers cancer typically pays a lump sum when the illness is diagnosed. The amount is a fixed predetermined amount that does not get affected by the amount reimbursed by the health plan. The stand-alone cancer plan defines varying proportion of payouts based on the stage of cancer. A broad critical illness plan covers between 10 to 30 illnesses. Payout for cancer triggers only when cancer crosses advanced severity. It is better to buy a broader critical illness plan unless you have a family history of cancer.

Abhishek Bondia is principal officer and managing director, SecureNow.in. Queries and views at mintmoney@livemint.com

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