How do I decide how much insurance cover to take?

How do I decide how much cover to take? – Srikar Reddy, Bangalore

Life insurance is a very personal matter and, therefore, the amount of cover required varies from individual to individual. While deciding the sum insured you should consider the following factors: (1) number of family members financially dependent on you, (2) your current income and the premium you can afford, (3) reasons for seeking insurance—risk cover, income protection, savings, tax planning or investment tool, (4) the living standards and the cost of living of the family, (5) benefits to accrue from an employer- sponsored life insurance plan, if available, (6) special life insurance needs (such as mortgage repayment, education fund, or estate planning) and, (7) other old-age or super-annuation benefits. After careful analysis of the above-mentioned factors, you will get an idea of how much cover you need. As a thumb rule, sum insured should be around 8-10 times one’s annual earnings.