Unlimited life insurance cover, though sounding to be a highly enticing bet, is in no way possible, even if the life insured has the capability to pay premiums towards it. And as such the main factors which the sum assured value for a life is decided are a person's net worth and income earned.
Without doubt, your life is priceless and invaluable to your family who may also be your dependents but nonetheless it has an economic value attached to it. This economic value is nothing but your earning potential accounting which sum insured value of a life is ascertained. Say for instance, young children as well as old people who are not earning do not have insurable value.
The rule of thumb states that in order to financially secure and protect your family against an unfortunate event of your death, a cover equal to 7 to 10 times of your annual income should be opted for. Though easy, this rule cannot be applied to all to best meet the financial exigencies that come forth upon the death of the insured. So, another method that can be used to arrive at the sum assured value for a life is the expenses replacement method. This method provides for a sum assured value that can better meet needs of your dependents in case of your death.
So, the theoretical proposition of unlimited life cover does not hold well in the real world. And before offering life insurance cover to the person concerned, insurers generally look for current financial standing as well as details of life insurance policies already held. Say, for instance, a person with an annual income of 5 lakh already insured for a sum equal to 50 lakhs who also has an outstanding liability of Rs. 25 lakh shall not be provided additional life cover. Current financial position figures out the capacity of payment towards premium amount such that policy lapses do not occur.
Also, a high insurance cover could many a times turn out to be the reason for the death of the insured. So, insurance companies do not provide for higher sum assured values over and above the insurable interest of the beneficiaries. So, life insurance is just a tool to safeguard your dependents against financial exigencies that emerge on account of your death and cannot be played with to reap undue financial advantage