Why do I need Life Insurance?

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Who will take care of my family and their needs if tomorrow something unfortunate happens to me? If this question bothers you, then you do need Life Insurance.

Of course, under any circumstances, the loss of a loved one is a traumatic experience. No amount of money in the world can compensate for this trauma. However, if your family is also left without sufficient funds to meet basic living expenses or prepare for future goals, they will have to cope with a financial crisis at the same time. A Life Insurance Plan will ensure that your family is financially secure even if you are no longer around to care for them.

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How much Life Insurance do I need?

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Before buying a Life Insurance policy, it is always important to find out the amount of Life Insurance cover (Sum Assured) you need. The following factors should be considered while buying a Life Insurance policy.

You age and number of dependents

• Your Annual Income and Annual Expenses

• Your outstanding liabilities like Home Loan, Car Loan etc.

• Your Investments & Savings

• Your Lifestyle expenses

• Your expected expenses in the future like Children’s education, Children’s marriage, Aspirational Vacations, Retirement etc.

As a thumb rule, it is recommended that your Life Insurance cover should be around 5 to 10 times your Annual Income. A good indicator to know your Life Insurance cover is your Human Life Value (HLV).

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What is Human Life Value (HLV)?

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Beyond all doubt, your life is invaluable. Yet, there is a certain worth that can be attributed to the financial support you offer your parents, spouse or children. This worth is referred to as Human Life Value (HLV). In the future, if your family does not have the protective blanket of your presence, they will no longer be able to enjoy the benefits of the income you earned. Put simply, Human Life Value is the present value of your future earnings.

 

 

Why should you calculate your Human Life Value?

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You should calculate your Human Life Value so you can accordingly invest in insurance plans that provide your family with adequate finances and hence security even in your absence.

 

 

How do you determine your Human Life Value?

 

Your Human Life Value is determined by 3 factors:

1. Your age

2. Current and future expenses

3. Current and future income as a thumb rule, if you are 30 years of age, you should insure yourself for an amount approximately 8 times your Annual Income. At 35, your insurance should be approximately 6 times your Annual Income. Of course, the exact amount of your insurance should be determined by the number of dependents, your existing investments and your life stage.