Should you upgrade your life insurance policy over time or keep it unchanged?

Kunal is 35 and a senior manager in a multinational pharma company. His wife is a homemaker and they have a 4-year-old son. Kunal has recently taken a loan to buy a 2-bedroom flat worth Rs 50 lakh. He has taken out a life cover for a sum assured of Rs 35 lakh and the premium outgo for the same is Rs 15,000 annually. He takes pride in the fact that he started his insurance planning quite early in life by taking a life cover as soon as he started his career about 10 years ago. He believes he got it quite cheap, considering his age then. The thought of reviewing his life cover has never crossed his mind. Is he doing the right thing by keeping his life cover unchanged?

Life does not remain the same, and one's life insurance policy should not either. Kunal must reassess his life insurance after each important milestone in his life. As he advances in his career, both income and lifestyle will improve. However, he remains the sole bread earner and his financial burdens have also grown. Life events such as buying a house funded by a home loan, marriage and child birth have had an impact on his finances and therefore, there is need for him to buy more life insurance cover.

Failing to upgrade his life insurance cover over time could mean that should something unfortunate were to happen to him, his family may not have enough funds to pay for the child's education, the home loan EMI and other household expenses. Therefore, it makes sense for him to increase his sum assured to cover the additional costs. It is particularly important to upgrade the sum assured to be able to provide a debt cover when borrowings increase.

Kunal might end up with a relatively cheaper plan, as premiums seem to have fallen over time, especially since the introduction of online insurance. Periodic review will not only allow Kunal to modify his current coverage, but also evaluate it in the context of his future plans and prepare for necessary changes in the coming years.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)