How much life insurance should I have?

These days a lot of thumb rules for the amount of insurance an individual needs get bandied around. "The insurance cover of an individual should be at least 5-7 times his annual income" is a rule that gets bandied around the most. While this rule ensures that an individual has some cover, it may not ensure that the individual has the right amount of cover. The "human life approach" is the right way of calculating the exact amount of life insurance that is needed.

Contact / Email us for a new LIC Policy: +91.9994910202

Let us take the case of a 30-year old individual who is married and lives with his parents. His wife is a homemaker and his parents are totally dependant on him.

He earns Rs 60,000 per month, after tax or Rs 720,000 per annum. His own monthly expenses are around Rs 10,000 per month. The remaining Rs 50,000 is what is available to his family. Let us say that if the individual expires suddenly his family will require Rs 50,000 per month to continue living at the same standard that they were used to. 

To earn Rs 50,000 per month a capital of Rs 75 lakh (Rs 7.5 million) would be required assuming a rate of return of 8 per cent per annum. At 8 per cent per annum, Rs 600,000 can be earned per year from an investment of Rs 75 lakh. Rupees six lakhs in a year, means Rs 50,000 per month, the amount the family will need. The individual should essentially be taking a term insurance policy of Rs 75 lakh. Term insurance policies are pure insurance policies. If the individual dies during the term of the policy his nominee will receive Rs 75 lakh.

If he survives the period of the policy, he does not get anything. The yearly premium on a cover of Rs 75 lakh, for a period of 25 years, on Anmol Jeevan-I, the term insurance policy from Life Insurance Corporation of India comes to Rs 28,660 per annum.

The fact that there is more than one methodology to calculate the HLV makes the subject even more challenging to understand.

The most common definition of HLV is the expected life time earnings of an individual, i.e. what is the total income that the individual is expected to earn over the remainder of his working life, expressed in present Rupee terms.

For the uninitiated, inflation eats away the value of money; a Rupee today is worth more than a Rupee tomorrow and therefore one needs to suitably 'discount' future earnings to express the value in present Rupee terms. Our view on how HLV should be calculated is quite different from this. HLV in our view is the monetary value of all the yet-to-be fulfilled needs of the dependents plus all the outstanding liabilities. Why do we define HLV in this manner (notice that we do not factor in earnings at all)? Simply because even though expected incomes may not be sufficient to meet the needs, the needs are still there. And an individual strives to meet the needs of his/her dependents. So, the HLV thrown up by our definition is really a 'target' that you should have in mind; you can and possibly may have to plan for a lower HLV, but don't despair over that.

WHY HEALTH INSURANCE MORE IMPORTANT

Why is having health insurance important ?

By TheWealthWisher 

• 3
  Share
• 
• 
  
• 
  
• 
  

The need for having a health policy is a very important one and yours truly got a dose of it himself when he was whisked into a hospital for a week with acute viral fever.

Being loaded with adequate health cover (also called mediclaim in India), I was safe with cashless hospitalization but are you ? Do you realize why is having health insurance so important and that too of an adequate amount ?

We look at some important reasons for having a good health policy in your financial planning.

1. No insurance means financial burden for an individual

For individuals and families that are not having mediclaim or little, any hospitalization means spending money from their pocket to pay the hospital. With the current medical costs in India and worldwide rising year after year, this can set you back big time.

In a country like India where you still boast of joint families and support to elderly parents, the probability of hospitalization each year is more. If you keep paying from your pocket each year, then essentially you have lost the plot of making money. Being uninsured is a dumb move to make.

2. Being under-insured can lead to inadequate medical care

Having a health policy is important and this is highlighted in the many occasions when you walk into a hospital for treatment and the first question they ask you is “Do you have insurance ?”.

If you do, good luck.

If not, they ask you to first pay up some amount as deposit before they can hospitalize you. Then they keep asking you for more money on a timely basis to make sure you can pay them.

But what happens if you do not have the money to pay them ? They will obviously chuck the patient out and it is for this very reason that begin under-insured leads to inadequate medical care. A patient with mediclaim will be subject to more tests and care than one without one.

It has been observed that no mediclaim can lead to more fatal outcomes for an individual. The inadequate medical care over a long period of time proves to be detrimental for the person.

It is but obvious why having a health cover is important.

3. Covering pre existing diseases

It is a no brainer that one should look to have a pre existing diseases policy.

The IRDA (Insurance Regulatory and Authority India) has mandated a maximum of 4 years after which your pre existing diseases need to be covered by your mediclaim policy but the health insurance companies could cover it much earlier as well.

Remember that the probability that a pre existing disease recurs again is more than a new one happening, so this makes it more important for one to ask why having a health cover is important these days and especially for pre existing diseases.

4. And then there are other policies apart from mediclaim

Mediclaim is meant when you want to cover a 24 hours hospitalization.

But what happens if a critical illness strikes you. Something like cancer will exhaust the limit of your mediclaim very quickly. Will you put in your own money towards treatment then ?

That is precisely why a medical corpus is needed. Today’s medical emergencies are such that a simple mediclaim policy does not suffice. You need more policies.

Take a personal accident insurance policy in case you have an accident and cannot work for sometime.
Take a critical illness policy for prescribed critical illnesses.
Take mediclaim for your entire family. For your young family, a family floater will do but for elderly parents, go for individual health insurance policies.
Form a medical corpus for you and your family.

If you want to stay healthy and sound, you need all off these policies. Not having one can come back to haunt you at the time an illness strikes and that is when you might realize its importance.

It is better to be safe than sorry. So are you missing on any of these ?

Star Health Insurance in coimbatore

S.V.NANDAGOPAL 

SALES MANAGER

STAR HEALTH INSURANCE 

COIMBATORE

MOBILE 99949102020

Do I Need Life Insurance?

Life insurance needs vary depending on your personal situation. If you have no dependents, you probably don't need life insurance. If you don't generate a significant percentage of your family's income, you may not need life insurance.

If your salary is important to supporting your family, paying the mortgage or other recurring bills, or sending your kids to college, life insurance is important to ensure that these financial obligations are covered in the event of your death.

How Much Life Insurance Do I Need?

It's difficult to apply a rule-of-thumb because the amount of life insurance you need depends on factors such as your other sources of income, how many dependents you have, your debts, and your lifestyle. The general guideline is between five and ten times your annual salary.

What Type of Policy Should I Buy?

The debate over term versus whole life insurance goes on. Some experts recommend that if you're under 40 years old and don't have a family disposition for a life threatening illness, go for term insurance, which offers a death benefit but no cash value.

Whole life offers both a death benefit and cash value, but is much more expensive. Half of all cash value policies are surrendered within the first seven years, making the coverage very expensive because huge commissions (thousands of dollars the first year) and fees limit the cash value in the early years. Since these fees are built into the complex investment formulas, most people don't realize just how much of their money is going into their insurance agent's pockets.

Whole Life

In this more traditional life insurance policy, the premiums stay the same over the life of the policy, which stays in effect until your death, even after you've paid all the premiums. A cash reserve is built up, but you have no control over how it's invested.

Variable Life

Variable life polices build up a cash reserve that you can invest in any of the choices offered by the insurance company. The value of your cash reserve depends on how well those investments are doing.

Life Insurance Worksheet

1. Your dependents' annual expenses, including mortgages, loans, credit card debts	RS___________
2. Your dependents' sources of other income, including salary, interest and dividends, social security, pensions, etc	RS____________
3. Additional income needed (subtract line 2 from line 1	RS____________
4. Divide line 3 by the interest rate you expect to earn (for example, if the prevailing interest rate is 8%, divide line 3 by .08)	RS____________
5. Face value of the policy needed	RS____________