Did you know?
Insurance is one of the most important factors in the process of Financial Planning. Most of you don’t know how much life insurance do you need; you just keep on buying policies with fancy advertisement in print and electronic media, which attracts you. We will show a simple calculation of your Life Insurance need.
Insurance is one of the most important factors in the process of Financial Planning. Most of you don’t know how much life insurance do you need; you just keep on buying policies with fancy advertisement in print and electronic media, which attracts you. We will show a simple calculation of your Life Insurance need.
Life Insurance Need = (12 X Annual Income)
+ Outstanding Loan
– Investment Assets
+ Outstanding Loan
– Investment Assets
- If you do not have any dependents you do not require Life Insurance.
- Investment (realisable) Assets will not include any personal assets such as house (where you are currently staying), jewellery and car.
- You should have Life insurance cover till your retirement age only.
- Buy Online Term Plan, since they are the cheapest.
Illustration:
Mr. Rahul aged 30 years, has an annual income of Rs.10
lakhs. He also has an outstanding home loan of Rs.20 lakhs. He holds a Bank
Fixed Deposit of Rs.2 Lakhs, has Rs.50,000 in Savings Account and Equity Mutual
Fund of Rs.2.50 Lakhs. How much Life Insurance cover does he need?
Solution:
Life Insurance Need = (12 X Annual Income) + Outstanding
Loan – Investment Assets
Life Insurance Need = (12 X 10,00,000) + 20,00,000 -
(2,00,000 + 50,000 + 2,50,000)
= 1,20,00,000 + 20,00,000 – 5,00,000
= Rs.1,35,00,000
So, Mr. Rahul should buy Life Insurance cover of Rs.1.35
Crores. He can consider buying Tata AIA I-Raksha Supreme of Rs.1.35 crores for
term of 30 years. This will cost him approximately Rs.11,300 per annum.
