Life Insurance: Anuj Agarwal

Today, Anuj Agarwal, Chief Executive Officer of Bajaj Allianz Life Insurance, answers your questions

I am 23 and have started working in June this year. I want to buy a life insurance policy but don't know which policy to buy. Please help.

It is always advantageous to buy life insurance when a person is young, mainly because of the lower cost. Choosing the type of plan depends primarily on the financial needs and goals one has set. As a golden rule, one needs to start by covering one's own debts, followed by financially protecting the family's standard of living. For a sole breadwinner, a pure term cover is ideally the starting point. It protects the family's standard of living and ensures it is not burdened with any debt. The sum assured to be taken will depend on one's total liability and the family's monthly expense.

For people with a good risk appetite and looking to create a corpus for financial goals, unit-linked insurance plans (Ulips) can be a good choice, as these combine life insurance with investment and work best for investment horizons of 15 years or more. The younger one starts saving in Ulips, the better. For people with low risk appetite, depending on investment horizon, a par endowment or whole life plan can be ideal.

I am 56 and own five pure life insurance policies that add to a total of Rs 60 lakh worth. However, I feel my family will need at least Rs 1 crore, if something happens to me. I am ready to pay a higher premium. Will I be offered a Rs 40-lakh life insurance or will my age come in the way?

The maximum age at entry of most term plans are at least 60 years. Hence, your age shall not be a constraint in seeking some extra cover. However, the maximum life coverage that can be offered is always subject to the underwriting guidelines of the insurer and one can get clarity on that only after applying. Whether a Rs 60-lakh cover is sufficient depends on your current financial commitments and debt. A simple way to calculate the amount of life insurance cover you need is by following these steps:

1. Calculate your annual household expenses, excluding EMIs
    
2. Divide that by the expected long-term fixed deposit rate
    
3. Add the loan amount due to the figure arrived above at step 2
    
4. Reduce existing life insurance cover from the figure arrived at step 3.
    
5. This is the balance life cover you require.

You can use more advanced financial planning tools as well but this gives you a fair idea of how much life cover you require on a given date.

The views expressed are expert's own. Send your queries to yourmoney@bsmail.in