Death is certain, but nobody knows when he/she is going to die. This uncertainty creates a peril, so taking life insurance is very important for the earning member of a family having financially dependent members. This is because, in case of untimely demise of the earning member, the life of financially dependent members would get jeopardised due to lack of money to sustain their lives.
To determine how much life cover a person needs, there are various formulas – like human life value etc and one should take adequate life cover to ensure that the family may maintain the standard of living by investing the money received from the insurance company.
There are two basically two types of insurance plans available – term insurance plan and endowment insurance plan. Term insurance plans are pure risk plans where there is no maturity value and only nominee gets money in case of unfortunate death of the life assured. On the other hand endowment plans, along with the death cover, also provide maturity value if the life assured survives the full policy term.
Endowment plans are expensive and a person may not be able to take adequate cover due to high premium, while sufficient cover may be taken through the cheaper term plans.
But, is that mean an applicant may apply for as much SA as he/she wants subject to premium payment capacity?
The answer is ‘No’. As the motive of having life insurance is to replace the loss of earnings due to untimely demise of the earning member, the eligibility to apply for the amount of SA depends on annual earnings and age of the member.
So, a person may take total life cover according to the following table taking all the in force policies taken together.
So, in case the average of last three years earnings of a 28-year-old applicant is Rs 5 lakh, he/she may take total life cover of Rs 1.1 crore. So, if the applicant already has taken insurance cover of Rs 10 lakh, he/she may apply for Rs 1 crore SA.
Similarly, a 40-year-old person having average annual income of Rs 10 lakh for last three years, will be eligible to take total life cover of Rs 1.7 crore, while a 50-year-old person having three years average annual income of Rs 20 lakh would take total life cover of Rs 2.4 crore.
On the other hand, a 55-year-old person having three years average annual in come of Rs 25 lakh will be eligible to take total life cover of Rs 2.5 crore.
So, to ensure that your application is not get rejected, keep in mind your age, income level and amount of current life cover you have, before applying for additional insurance cover.
In case you don’t mention the existing policies, your application may be accepted, but in case of any eventuality the nominee may not get the claim amount of the additional cover. So, you have to mention the SA of existing policies to ensure that the claim is not rejected due to non-compliance of the disclosure provision.