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Life insurance is important if you have dependents. But refrain from mixing insurance with investment…

I am 28 years old and my monthly income is Rs 55,000. I am planning to buy an LIC policy for both as an investment and security for my family. Which LIC plans do you suggest? I am ready to pay an annual premium of Rs 30,000 - Rs 35,000 space.
- Vishal Pathak

Life insurance is necessary if you have financial dependents. Financial dependents could be spouse, children, aged parents or younger siblings. If you are already in a situation with financial dependents, you should definitely have a term insurance plan to cover the financial risks that your dependents will be exposed to, if something were to happen to you. We suggest you keep your life insurance and investments needs separate and not mix the two and instead go for a pure life insurance plan and invest the remaining surplus in other financial instruments such as mutual funds.

The right amount of insurance cover that you need depends on your needs. For instance, if you have aged dependents, your insurance needs will be far different compared to someone who is single and has no financial dependents. On their part, insurers take into account factors such as your age, gender, income, health condition and lifestyle habits such as being smoker or a non-smoker to arrive at the premium that you pay for a policy. Assuming you have just a dependent as your spouse, we suggest you take a life cover for at least 7 times your annual income, which works to Rs 40 lakh cover for the next 30 years, with periodic review. Going by your comfort level with LIC, we suggest you consider LIC Jeevan Amulya term plan which works to Rs 12,040 annual premium for the next 30 years, which is way less than the sum you are willing to pay annually. There are other insurers who offer online term plans which cost less compared with this policy such as Aviva i-Life which works to Rs 5,445 annual premium for a similar Rs 40 lakh cover for the next 30 years.

From your budgeted Rs 30,000-35,000 towards investment and protection, you will be left with surplus once you go for a term plan, which you can consider investing in a balanced fund to start with. Start investing through a monthly SIP in a fund that you can shortlist from the Fund Select feature on our website. Observe the way your investments behave over the next six months to a year, which will help you understand how mutual funds work and how volatile the markets can be. Once you experience mutual fund investing after this phase, you can start adding funds from other categories and diversify your investments.

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