IDEAL SUM ASSURED IS LINKED TO INTEREST RATE

■ Treat term insurance as an income-replacement product

■ Suppose a person’s current income is ~20 lakh

■ Let us assume his dependants are not financially savvy

■ If he passes away, the dependants are likely to place the money in a fixed deposit

■ The highest interest rate one can get on State Bank of India’s term deposits today is 5.4 per cent (6.2 per cent for senior citizens)

■ One needs a sum assured of at least ~3.7 crore to generate an annual income of ~20 lakh (at 5.4 per cent)

■ Thus, when interest rates decline, the sum assured one needs to buy increases