Is Your Life Insurance Enough for Your Family’s Future?

  • 18th Oct, 2013

When planning your finances, you take into account adequate health insurance, motor insurance, investments, and savings for a rainy day. But do you take into account your life insurance premium? The answer, in most cases, would be “Yes!” But the real question is, are you certain that you are optimally insured?

Studies have shown that Indians are some of the most underinsured people in the world, when it comes to life insurance. While the rule of thumb is that you should be insured for at least 10 times your annual income, rapid inflation no longer leaves us with that option. It’s time to take a careful look at your life insurance policy, because if some unforeseen tragedy takes place, you won’t have a second chance at securing your family’s future.

Of course, there are objections to this. No one likes to think of the future in terms of negative what-ifs. “Why do I need to pay a high premium for a big life insurance policy I probably won’t even need?” is how most people think. But consider that Life insurance is the one part of financial planning that is done not for ourselves, but for our loved ones. In the event that you are not there to take care of them financially, your life insurance policy has the power to ensure they never lack for anything – and for this, you must be adequately insured.

However, this does not mean that just any large amount is fine. To maintain your family’s standard of living well into the future, you must calculate the adequate life insurance amount. You can do this via the Human Life Value Method. The presentation given below shows you how, in 3 easy steps!

Do remember, that when calculating your life insurance cover, you must account for the following expenses as well:

  • Your children’s education – This could take anything between 30-50 lakh rupees per child. The figure includes expenses for primary education, schooling, and college.
  • Your children’s weddings – Weddings are always expensive, and it’s best to err on the side of caution. A good figure would be about 20-30 lakh rupees per child.
  • Your spouse’s future expenses – When calculating these, do remember to factor in any health issues, along with inflation and how it may affect day-to-day expenses. It would be a good idea to supplement this part of your financial planning with a critical illness cover for your spouse, along with the usual health insurance policy and top-up cover.
  • Any outstanding loans – If you’ve taken a loan of any kind, be it housing or car or business, your life insurance cover should also be able to fulfill the loan repayment without affecting any of your family’s future expenses.

Seems like an impossibly large amount, doesn’t it? Don’t worry, there are ways to reduce it! For starters, you can deduct the value of your current financial assets and properties from this amount. However, it is advisable to not deduct the value of items whose value may decrease with time, such as jewellery or vehicles. Also, if your spouse is working and contributing significantly to your family’s finances, then you can adjust the final cover amount accordingly. However, if you have more dependents, such as over two children and/or parents, you should not decrease your cover – instead, increase it by some amount to factor their needs in as well.

Finally, keep reviewing your policy every few years to make allowances for changes in your life, economic progress, inflation, increased or decreased responsibilities, and anything else that may crop up with time. And remember – life insurance is not a substitute for savings! Along with having adequate life insurance cover, you must save regularly as well.

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