I have recently taken a home loan of 50 lakh. I have been advised to enhance my life insurance. I have an existing cover of 30 lakh through a term policy. What should I do?

—Name withheld on request

As a thumb rule, it is recommended to buy life insurance coverage equal to 10 times your annual income. This should be further enhanced for any known financial liabilities.

Separately, banks also suggest borrowers to buy term coverage to secure their loan in case of the borrower’s death. Banks generally recommend a coverage equal to the loan amount for this purpose. This plan then needs to be assigned to the bank. In case of the borrower’s death, the proceeds go to the bank instead of the nominee.

Given that you already have coverage of 30 lakh, you could take an additional term plan of 20 lakh. Both these plans could be assigned to the bank. Additionally, you could buy term insurance equal to 19 times of your income. Such plan need not be assigned to the bank. You could also evaluate if it is cheaper to buy a combined term plan, and surrender your existing plan. You can do a partial assignment of up to 50 lakh to the bank.

Is there a disease-specific cap in all group health insurance plans or does it vary from company to company?

—John D’souza

A group health insurance plan gets customized for each company. A disease-specific cap limits the utilization of the sum insured for specific illnesses. This reduces the claim amount. So, insurance companies offer a reduced premium for policies with capping for specific diseases. Several companies get disease-wise capping included in their policies to reduce the claims and the amount of premium.

Also, remember that the number of diseases that are restricted to a specific amount and amount can be customized.

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

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