a close up of an umbrella: Insurance needs change with changes in age, income, expenses, debt, lifestyle, inflation, etc.; and you need to factor in these changes and top-up your insurance purchases.


© Provided by The Financial Express
Insurance needs change with changes in age, income, expenses, debt, lifestyle, inflation, etc.; and you need to factor in these changes and top-up your insurance purchases.

Having inadequate life insurance protection could be as devastating for your dependent family members as not having a life insurance cover at all. If you don’t have any life insurance cover, you may identify your insurance requirement and get the appropriate product. But if your life insurance size is inadequate, you may not know it until you review it correctly.

Hence, it’s essential to understand why you may still be underinsured, how it may impact your family’s financial future and how much protection would you require for adequate coverage.

How to determine adequate cover size

One of the key purposes of a life insurance policy is to ensure financial support to the insured’s dependent family members after his or her death. There are various ways to ascertain the financial need from the insurance point of view; however, the thumb rule is to have life cover of at least 10 times your current annual income. Meaning, if your current annual income is Rs 10 lakh, you should have a life insurance cover worth at least Rs 1 crore. If your cover is less than Rs 1 crore, you are underinsured. Another method to ascertain your life insurance requirement is using the Human Life Value (HLV) method. Under the HLV method, you need to consider your current income, expenses, expected future responsibilities, and goals to determine the insurance need. You may take the help of any HLV calculator available online.

Why your life cover may be inadequate

There are several reasons why your insurance cover may prove to be inadequate. If you have taken your life insurance several years back