Dear Friends, we know that insurance has became one of the basic requirements for living a safe and secure life. An insurance provides us safety and financial stabilities in testing time. Through proper insurance, whether it is on your health, home, or life you can secure future of your beloved in case you are not present in future.
The calculation of exact amount of insurance policy or sub assured under insurance to cover all your future liabilities is a Herculean Task. But it is very important to calculate the type and amount of insurance policy to be taken to secure all future liabilities and to save such amount from insurance so that the level of life will not affect.
An individual should be very clear about his/her objective to buy insurance. The basic objective of the life insurance to cover the risk of life and while all other objectives like saving/investment are secondary.
We have to choose an insurance plan depends upon our present and future need and of course your income.
LET'S FIRST CALCULATE HUMAN VALUE OF A PERSON
For example, Mr. A , 25 years aged an Engineer earning Rs. 2,00000/- per month and after deduction of TDS and personal expenses his monthly income is Rs. 125000/-. Let's suppose he will work till age of 60 years and there will be @10% increase in his salary every year.
|
Annual Earning |
Rs. 24,00,000/- |
|
After TDS and Personal Expenses |
Rs. 15,00,000/- |
|
Earning Period |
35 Years |
|
Let's consider Rate of interest |
@8% |
|
Total Earning in 35 years |
Rs. 40,65,36,550/- |
|
Present Value of Total Earning @8% |
Rs. 2,74,95,910/- |
We find that Mr. A's human life value today is Rs. 2,74,95,910/-. But it is not possible for every person to take insurance equivalent to his human value.
Now in this case we have to take insurance policy according to our present and future needs.
LETS' CONSIDER ANOTHER EXAMPLE;
Mr. B has two dependents his son, daughter and his wife and his future and present liabilities are a follow;
A. FUTURE FUND NEEDED BY MR. B
|
Sr. No. |
Dependents |
Fund Requirements |
||
|
1 |
Wife |
Marriage |
Education |
Medical |
|
2 |
Son |
20,00,000 |
10,00,000 |
|
|
3 |
Daughter |
50,00,000 |
10,00,000 |
|
|
Total |
70,00,000 |
20,00,000 |
||
B. THE DEBT TAKEN BY MR. B ( CURRENTLY LOANS GOING ON)
|
1 |
Housing Loan |
40,00,000 |
|
|
2 |
Car Loan |
15,00,000 |
|
|
3 |
Personal Loan |
10,00,000 |
|
|
Total |
65,00,000 |
||
C. LETS ESTIMATE COST OF DEATH ( IF MR. B DIED)
|
1 |
Medical Expenses |
5,00,000 |
|
|
2 |
Funeral Expenses |
2,00,000 |
|
|
3 |
Unpaid Taxes & Mis |
3,00,000 |
|
|
Total |
10,00,000 |
||
D. LETS CONSIDER HOW MUCH MONEY MR.B'S FAMILY REQUIRED EACH MONTH ( Keeping at lowest level);
|
Sr. No. |
Particulars |
Until Youngest child is Independent |
After Youngest Child become Independent |
|
1 |
Food |
30,000 |
25,000 |
|
2 |
Clothing |
10,000 |
8,000 |
|
3 |
Medical |
2,000 |
2,000 |
|
4 |
Education |
10,000 |
0 |
|
5 |
Recreation |
5,000 |
3,000 |
|
6 |
Miscellaneous |
5,000 |
1,000 |
|
Total |
62,000 |
39,000 |
E. LETS' CONSIDER THE AVAILABLE SOURCES OF MONEY MR. B LEFT BEHIND
|
Sr. No. |
Particulars |
Monthly Amount |
Lumpsum Amount (Rs.) |
|
1 |
Savings Account |
5,00,000 |
|
|
2 |
FDRs |
10,00,000 |
|
|
3 |
PF |
10,00,000 |
|
|
4 |
Gratuity |
10,00,000 |
|
|
5 |
Mutual Fund |
10,00,000 |
|
|
6 |
Insurance |
6,00,000 |
|
|
7 |
Pension per month |
15,000 |
|
|
Total |
15,000 |
51,00,000 |
|
Fund Available |
Rs. 51,00,000 |
|
|
Immediate Cash Requirements |
||
|
As Per Item(B) |
Rs. 65,00,000 |
|
|
As Per Item(C ) |
Rs. 10,00,000 |
Rs. 75,00,000 |
|
Net Funds Available |
Rs. -24,00,000 |
F. CALCULATION OF AMOUNT OF INSURANCE TO BE TAKEN
|
Monthly Income Through Pension |
Rs. 15,000/- |
|
Monthly requirements before Youngest son become independent |
Rs. 62,000/- |
|
Surplus/Deficit |
Rs. -47,000/- |
I. INSURANCE TO MEET UNPAID FUTURE LIABILITIES
|
Deficit to meet the marriage & Education Expenses |
Rs. 90,00,000/- |
|
Deficit to meet loan amount |
Rs. 24,00,000/- |
|
Total deficit (I) |
Rs. 1,14,00,000/- |
II. INSURANCE TO KEEP MONTHLY FLOW INTACT
|
Monthly Income Through Pension |
Rs. 15,000/- |
|
Monthly requirements before Youngest son become independent |
Rs. 62,000/- |
|
Surplus/Deficit |
Rs. -47,000/- |
|
To meet deficit of Rs. 47,000/- per month the Insurance Requirement will be ( 47,000*12/8%) (II) |
Rs.70,50,000/- |
G. TOTAL INSURANCE NEEDED
|
Insurance Need of Mr. B( I+II) |
Rs. 1,84,50,000/- |
|
|
Option I |
Term Insurance |
Low Premium |
|
Option II |
Term Insurance + Endowment Insurance |
Low Premium but under Endowment Plan Premium will be higher. |
Now we have arrived at a point ,where we can say that Mr. B required Rs. 1,84,50,000/- insurance policy to secure his all present and future liabilities and to provide his family members a secure and hassle-free life.
Conclusion
After knowing the Insurance need one can decide Best Insurance Policy which will suit his/her requirements keeping in view his/her Annual Income and the Premium Amount. Term Insurance Policy is one of the best policies if you want to cover all your needs, without saving options or your may choose a combination of Term Insurance and Endowment Plant suitable for your conditions. There will be not best plan , but it will depend on your need and when you compare your plan with other available plans.
Disclaimer
The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, author assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws and take appropriate advice of consultants. The user of the information agrees that the information is not professional advice and is subject to change without notice. Author assume no responsibility for the consequences of the use of such information.
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