How much Insurance do you really need? Also the methods of calculating insurance needs for your family.

Income Replacement Value

Insurance needs = annual income * number of years left for retirement.

Let’s say your annual income is Rs 10,00,000. And you are 45 years old with 15 more years for retirement.

In this case your insurance cover equals Rs 10,00,000 * 15 = Rs 15000000.

Another way in which income replacement works is to multiply the annual income by 10 (also known as Income Replacement Multiplier).

Human Life Value

HLV is defined as the present value of all future income that you could expect to earn for your family’s benefit. It also includes other value you expect to contribute, less personal expenses, life insurance premiums and taxes through your planned retirement date.

Example

Alok at 40 yrs of age and his gross income is 10 lacs. He pays taxes of Rs 300000and his personal expenses are 120000per annum, he pays for an ins Rs 15000 per annum/

Surplus left for family isRs 565000 per annum or Rs 47000 per month

Assuming ret at 60 years in case of death he has 20 years left

565000*10.6=59.89 or 60 lacs

Need based method of Insurance

Insurance analysis of couple

OS Loans and Liabilities at actuals  + (Add)

Goals- Child Edu/ Child Marriage/ House purchase/ All Heads of Expenditure which family will need to maintain the same lifestyle(PV of expenses till spouse LE)= Total INSURANCE NEED

TOTAL INS- EXISTING LIFE COVER- LIQUID ASSEST= INSURANCE COVER NEEDED AFTER CONSIDERING EXISTING RESOURCES