How much Insurance Cover is Enough ?

POSTED BY manish ON November 8, 2009 COMMENTS (67)

A reader asks me “How much Insurance is Enough ? Is 1 crore Enough ? ” . Now this is an extremely important and very easy to answer . How do you think about it is very very easy .

There are two models of answering this , One is to sum up everything as per your situation and then come up with a Figure and the other one which I recently thought about is a reverse answering yourself (yes !! , yourself) on how it will take care of your dependents after you are gone .

How Much Insurance Is Enough

Are you Wondering How much Insurance you should take ?

Many people I interact with come up with Weird Figures for their Insurance Cover , Without any calculations they will cough up numbers like 5 lacs , 20 lacs , 50 lacs , 80 lacs or 1 crore (Come on .. this is not a game called “Even Figure , Even Figure” , Its not a Game !! ).

I ask them a very Simple thing, I ask them to explain me, literally explain me in writing, How the money your Dependents are going to receive will be utilized and How it will take care of things once they are not there.

Not even one of them succeeds in allocating that money for different goals which are pending after they are gone and be satisfied with it.

There are numerous things to be taken care of after the earning person is gone, like –

  • Providing Regular Income to your Family (like you would have done if you were Alive)
  • Making sure all the Debt is Paid off (Which you were going to clear off If you were there, Things like Home Loan, Car Loan, Any other loan)
  • Making Sure that your Children Future Expenses like Education and Marriage are taken care of (Some money might be required to be Invested for these goals which will haunt you later in life)
  • Enough Money for Emergencies which could Arise and Literally Destroy your Family Happiness like Unexpected Accidents, Some Critical Illness etc

Seriously !! .. This is Common Sense .

Read an article on Process of Calculating you Insurance Cover

Insurance Cover as 10 times of Yearly Income is not a good Idea

Now most of the Insurance agents definition of Insurance cover is “10-15 times of your yearly Income”. I ask Why?

Ajay Earns 8 lacs, Just one dependent, Has some good asset corpus, Should he just buy 10-15 times of Insurance cover … No !!

Robert Earns 4 Lacs , Has a home loan (Read how to find the cheapest Home Loan), 4 Children and a personal Wife along with Old Parents, High Expenses, No other Earning or “Capable of Earning” Member in Family. Should he buy 10-15 times of Insurance only? NO !! .

The Model just gives a rough Idea on what can be your Requirement but most of the times it does not work, have the guts and logical mindset to Deny what People in personal Finance space tell you , they are not GOD, they lack common sense sometimes (Read “most of the times”)

Calculating Insurance is not a very tough process, Its just Logical and step by step process.

An Example

Robert tells me that he earns 4 lacs a year and he thinks that 50 lacs is enough for Insurance cover. Some one told him that 10-15 times of his yearly Income is what he should be Covered for.

Conversation goes like this

Me : So you believe that 50 lacs is a good amount for you to be Covered. Fine !!, You are dead and tell me what happens Next !! .
Robert : hmm .. ok , See , my Family expenses is around 20k per month If I am not there , So that is one thing which should continue , so I will put 30 Lacs in some Instrument Like some Best Fixed Deposit (FD) or MIP and it will pay 20k per month to my family , I think 30 Lacs would go for that . 30 lacs getting 8% interest will be 2.4 lacs and that means 20k per month .
___

Me : OK , Not the best way of doing it , but looks workable and safe .. Go ahead
Robert : Another 20 Lacs will be enough for other Important things πŸ™‚
___

Me : No .. Get Deeper !! , Dig out things and tell me exactly How !!
Robert : OK , I have 3 children .. I think a Good Education today can be taken care by 20 lacs for all of them .
___

Me : Talk About Future , Its 12 yrs away , They are kids now .. Today 20 lacs is good , but what about 12 yrs from now ? Do you know that Education costs are increasing by 10% per year now a days . You require 60 lacs after 12 yrs For Higher Education of your Children . Understand Inflation .
Robert (quiet) : Hmm.. That’s something I didn’t think about . So I will need 60 lacs , I need 40 lacs more of cover .

___ Read Top 10 Financial Planning Doubts

Me : Actually No !! , All you need is to get 20 lacs only , because you will actually Invest it , You need 60 lacs at the time of their Education , not now . So you Invest that money in such a way that you get around 10% return and you will have enough savings for your Child Education , Make sure you dont take more than required risk for this .

Robert : ok , Got it . So the 50 lacs exhausted . I am not sure what are the other things which needs to be taken care of ?
___

Me : DO you have some liabilities, Like Loans?
Robert : I had a Car loan, but only 6 lacs is remaining. Should I take care of that also?
___

Me : I don’t mind if you don’t think about it , just tell me how is that going to taken care of if you I kill you just now !! If Its paid from 20 lacs , then somewhere your Child Education is compromised . (This Idiot Doesn’t have a Home yet and He is riding a Honda , and smartie earns 4 lacs a year)
Robert (Dying to kick me) : OK OK . Add another 6 lacs , now its 56 lacs .

__

Me : Good πŸ™‚ . Was there anything you wanted to provide your Family if you were there with them.
Robert : (after a lot of thinking and trying to hide his guilt now) Well Actually We dont have a Home yet. I am planning to buy a Home soon, may be around 30 lacs. [doesn’t fits his Budget, but smartie recently bought A Home Theatre (Doesn’t Have a home yet), This is what I call “Not understanding Difference Between Needs and Wants” ]

__

Me : So definitely you want to make sure that they have a Home once you are not there , the same way you were going to buy one , or you want to live on rent on life because you are not there to enjoy the “Sweet Home”.
Robert : So that adds up 30 lacs more and the requirement is around 56 + 30 = 86 Lacs .

__

Me : I am happy to say “YES” πŸ™‚ . you made my day …
Robert : So that’s it .. I need 36 lacs More .

__

Me : So your Parents are Old , correct ? And you people have spacial blessings from god that your Family can never have accidents or your family will never get into Emergencies ? Right !!
Robert : Well .. That can Happen , But lets skip it . It has never happened and I don’t think it would happen with my Family .
__

Me : No !! I refuse to accept it .. You have taken care of other things, All your 86 lacs is going to help them in some or the other way. Now tell me how will your Family will Handle with emergency situations which might demand 10 lacs of Expenses. I know you cant calculate exactly how much they might require. It can be 5, 10 or 20 lacs, but lets take a good figure of 10 lacs and better prepare for something if not anything .
Robert : OK, Lets add 10 lacs more for anything unexpected or Emergency expenses which we have not taken care of .. Its 96 lacs now ..

__

Me : OK, this is a better situation !! I would not say that this is the best Insurance Planning, but you have done a good planning and this is a much better situation than earlier. This is what a common person can do for himself and this should work.
Robert : Yup .. I accept .. I understood it now ..

__

Me : So Robert , Make sure you understand that Insurance is something which you need to take for your Family and it should be enough to make their life comfortable once you are gone, this extra 46 lacs of cover will cost you not more than 20k per year (10k for people around 28-29 yrs). If you are planning why not plan systematically and 100% , why mess it up.
Robert : Yup, Actually my Uncle told me that I should take around 10-12 times of my Yearly Income as my Insurance Cover, so I came with figure of 50 lacs

__

Me : F^&%#!^#(@^……….F#*(^$(*@^*$^@*(…….F*&#^&^$*#^$
Robert : Yes, you are right !! I understand it now.

Note : the assumption is that there are no assets, If there are Assets, then you need to deduct it from your Insurance cover.

Learning from This

So if you think you should have Rs X amount of Cover, Just ask yourself how is that amount going to take care of everything after you are gone and you will be surprised to know how wrong you were . This is specially for people who have those Endowment Policies stinking in their portfolio.

I ask them openly if they want to share with us How is that helping their Families if they are not there. Some Important learning are.

  • Covering your Dependents is P1 (software guys will understand this), P1 means some thing with Highest Priority, something for which you should stop all other tasks and make sure you fix that.
  • It does not cost a bomb if you fix this, Term Insurance is Cheap

That’s all ..

@Ganesh has a very good comment which completes the post with his awesome thoughts . please go through it ..

I don’t think any part of the example is incorrect or unnecessary. In fact, a thought process like this can open up someone’s mind completely, and arrive at a well adjudged decision on his/ her insurance needs. Kudos to you.

But having said that, drawing a line between one’s insurance needs and his means to cover premium expenses is critical as well.

Let us take Robert’s example. He has a salary of 4 lacks per Annam (33.5K per month). Expenses include 20K per month living expenses (excluding his own) and roughly 13.5K per month EMI (for 6 lakhs, at 12%, for 10 years) among many other.

So he is living way beyond his means already. How will he ever pay premiums for insurance? Beats me πŸ™‚

But it is just an example, right? Characters like Robert, though rare, do exist. Before he starts with high insurance cover, he should start building assets or save/ invest for building assets.

So in my opinion, Robert should cover living expenses, loan liabilities and sufficient contingency to begin with and slowly increase his cover based on how his earning/ saving potential progress. It is unfortunate that he is in this position already, but that’s the truth.

So providing exclusive cover for children’s education and future home, though very important, is beyond what he can afford at present. (By the way, LIC’s Anmol Jeevan – a term plan – for a cover of 96 lakhs and 25 year term would cost 36.5K per Annam or around 3K per month)

Here is another view point (bit radical) on being heavily insured. The amount at stake is 96 lakhs in case of Robert’s death. It’s a scary thought, but in today’s world it might just be enough for greedy, evil minds to devise devilish ways to stake claim for the bumper jackpot (given his current earning potential).

To put it simple, the insurance amount should be sufficient enough for Robert to say “I care about you” to his dependents and not so much to hear “Hell with you” from them!

Comments are Welcome, If you read this and feel like you learnt some thing useful, you are obligated to put your Comments here ..

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67 replies on this article “How much Insurance Cover is Enough ?”

  1. SUMESH says:

    Sir,
    I have taken the following insurance .Now now i feel that I am over insured. pls help me & kindly advice whether this coverage is good enough.My age is 37 years having one daughter are 4 years.

    My annual income is 12.3 lacks(take home)

    TYPE OF INSURANCE SI PREMIUM
    1 Term Plan 1.5 CR 18630
    2 HEALTH INSURANCE 5 LACK 14798
    3 HEALTH INSURANCE(SUPER TOP UP) 20 LACK 4696
    4 GROUP HEALTH INSURANCE 6 LACKS 10000
    5 PERONAL ACCIDENT POLICY 1 CR 13252

    TOTAL 61376

    ANNUAL TAKE HOME SALARY 12.32 LACK

    % BASED ON ANNUAL INCOME 5%

    1. I think you are properly insured

      1. Sumesh says:

        Thanks a lot manish for your reply.As i was feeling guilty of takings such a amount which is not retunable.After seeing ur reply i feel relaxed

  2. ajay says:

    Thanks for your finance calculator . it helps for planning life very systamatically.

  3. kamal says:

    Dear Manish,
    pls tell me is there any limitation on SA with respect to annual income?

    1. Kamal

      Yes, for higher sum assured , it can be limited to some amount depending on annual income , you cant take a 4 crore policy if you just have 5 lacs per annum income

  4. Kumar says:

    Thanks a lot for your fantastic blogs. It enables common man to do financial planning.

    I calculated my insurance need as per your way it comes to 75 Lakhs. Now if I already have 1 Crore on assets like, stocks, mutual funds, FDs, company life insurance etc., then do we need additional term insurance?

    Kumar

    1. Kumar

      No , then your net insurance requirement is 0 becuase your assets will take care of everything

      Manish

      1. Kumar says:

        Thanks manish for your reply.

        Kumar

  5. bhavesh says:

    hi manish…..
    very informative blog for everyone.continue to share your knowledege. thanks.

    1. Bhavesh

      thanks for the comment . Keep reading πŸ™‚

      manish

  6. naveed says:

    Hi Manish,

    Thanks a lot for wonderful work.

    Can I have your inputs on Nayak questions dated on May 28, 2010 at 6:59 pm

    1. Naveed

      thanks . you can ask your query at forum : https://www.jagoinvestor.com/forum/

      Manish

  7. Sud says:

    Hello Manish,

    Its been a year since you posted this, but I have started reading your blogs since last 1 month and I found it quite informative and your blog had me hooked to it. I have one question though, and at the moment I aint hiring any financial planner soon. So, thought of asking you this. I guess, you are notified when I post here [:P] Please come running with a reply πŸ˜€

    Me and My Wife both are working with one of India’s best PSU and our monthly take hand after deduction of EPF and taxes (without perks) is 65000 approx (both earn same salary). Do both of us need separate term insurance? Our company insure us for 8.5 Lac each.

    I have calculated MY term insurance requirement using your method, and found that my Insurance requirement is 25 Lac, that I need to take cover of 25 Lacs. So, My wife also need to take same cover as I do (of 25 lacs)? We have 9 months old Son.

    1. Sud

      You might have to take 25 lacs insurance because your wife might be dependent on you for money in a way or might want to leave 25 lacs incase you are not around . In the same way is it important that incase your wife is not around you need money ? Are you also financially dependent on her to equal quantam as much as she is on you ? If its YES , then even she should take 25 lacs term plan

      Manish

  8. vinay says:

    Hi Dear Manish.,
    It is nice to see the discussion on various financial matters taking place here. For a layman like me it is very useful to decide what is the best and how important planning is. I have one query I am 37 years old and recently came through one insurance policy of religare for 100Lakhs. for my age the premium is around 15000/- per annum approx for 15 years. should I go for it? i have one reliance automatic investment plan for 15 years and paid 2 terms for 25000/ per annum. and LIC ULIP . PPF and postal life insurance.

    Please guide about the planning

    thanks
    vinay

    1. Vinay

      Before doing anything , take that term insurance, you might want to see if you want to take iTerm or split it across different insurers .

      Hire a financial planner .

      Manish

  9. Khushboo says:

    Hi Manish

    Very good discussion and awesome place to visit regularly. I have a small query….if husband and wife both are earning equally. Which one should take the insurance policy? Are there any pure joint life insurance policies?

    1. Khusboo

      The one who will be impacted more financially more should take less insurance . For example in general even though both are earning more , I feel guy should take more insurance , as after his death it would be tough for a girl more compared to life of guy incase of girl’s death .

      I hope you get my messsage ?

      Manish

  10. Keyur says:

    Do we have an experience/knowledge of how good is their claim approval record? I was recently talking to sales agent from another insurance company and he said the pending (or rejected) claim ratio for Aegon Religare is as high as 75% for 09-10 as compared to 4.45 (approx) for HDFC Standard Life.

    I tried looking for this information on IRDA’s website but annual report was only available till 08-09.

    1. Keyur

      Yes, their claim record is bad as of now , you can get report only for 08-09 , 09-10 should be out soon πŸ™‚

      Manish

  11. Ash says:

    Hi Manish,
    Really glad to see such an informative blog…Have been deciding on taking a term insurance for my husband (35 yrs) from LIC -(Amulya Jeevan) for 50lacs ,25yrs-prmium is 19,850,no riders attached…
    However am a little confused now so as to take wherther i should divide my insurance into 25 lac each ,one with LIC and 2nd with Aegon Religare.
    We are based in Dubai,Can you please help me with your view on this.

    1. Ash

      You might not get a term insurance from Aegon , better try LIC . You can split it amount LIC and SBI or HDFC .

      Manish

      1. Ash says:

        Ok kewl….advice taken..will look at the premiums for SBI and HDFC as well….cheers:)

  12. Karthikeyan says:

    Hai manish,

    I just got this blog by mistake and was amazed with your contents. Thanks for educating us all. Coming to the point
    1) I have policy with ICICI, its Life time gold-Enhancer (ULIP) with SA of 125000/- (Premium of 24000/annum). Its now more or less 3 years and i am in dillema wheather to continue this ULIP or not. The NAV never surpassed 11 in the last 3 years.
    2) Apart from above, i have 2 more LIC Policies (Money back) of 3 lacs and 5 lacs. Premium is 9000 & 18000/annum. Can i discontinue and redirect those amounts in Mutual funds?

    Thankyou for your reply in advance.

    1. Karthikeyan

      If its hard to manage a ULIP for you , you should surrender it , but most of the damage has already been done from charges point, so you may learn to use them , Also surrendering them before 5 yrs means paying tax on all the money you get back .

      Regarding lic policies , it will depend on how much time has passed? if its 1-2 yrs , then forget it and start all over .

      Manish

  13. Nayak says:

    Dear Manish,

    After I spent quality time on your blogs I am writing this.
    Believe me there are 2 areas on which I have never thought seriously
    1- Term Insurance
    2- PPF

    I am glad people like you are there to teach us.

    Ok coming to my query which requires your opinion :

    I am a 26 year Guy (married recently),
    Monthly take home around 53K
    My wife earns 42K

    We have combined Home Loan of 35 Lacs (thats the only liability I can say on both of us at present)

    Now question is about my view point on my future financial planning and your advice:

    1 Recurring Dep 10000
    2 LIC 3440
    3 Gold 5000
    4 Home Loan 15000
    5 MF 5000 *
    6 Stock 3000 *
    7 PPF 5500 *
    8 Term Insurance 750 *

    Total 48000 (approx)

    ( The items marked * are yet to be applied which I am planning to start in 2 months time )

    Though You can suggest on my complete portfolio , I am willing to ask you on * marked mostly.

    5. To achieve a Good financial gain in 15-20 years Time
    ——————————————————–
    I have planned to invest in equity diversified funds (the good rated ones ofcourse with past record)
    5000 PM using SIP for 15-20 years.

    6. To achieve intermediate gains
    β€”β€”β€”β€”β€”β€”β€”β€”β€”β€”
    A- grade share investment with horizon of 1-5 years.

    7. To have assured good lump sum income which can even utilsed for child study or future need
    ———————————————————————–
    PPF of 70000 per annum

    8. Without wasting any more money on any insurance/ULIP/LIC I want a better coverage ( I dont need return only INSURANCE)
    —————————————————————–
    I have assumed I would take ICICI Pru term insurance ( for 25 year coverage , 50 lacs insurance , the premium is around 8000)
    Though Religare looks tempting but we are yet to know about the CLAIM process (and for a 50 lac claim -if i die – i dont think
    2-3000 makes big deal in a year.

    Please write your comments on my PLANS.

    Thanks in Advance Manish & All.

  14. Arjun says:

    Sir,
    It’s really a knowledgeable blog, I have ever seen.

    But one of the thing which I found on every financial blog is they have sound knowledge of insurance products but they never post any blog regarding precautious before taking any insurance.

    Like.
    1. What information should we provide to Insurance Company so that they don’t have any reason to reject claim if any mis happening occurs in future.

    2. What insurance should we take to provide full risk cover to nominee in any case of death or disability?

    Rest if I missed anything you people know very well and could provide us other details.

    1. Arjun

      thanks for the feeback . Welcome to the blog .

      to answer your query

      1) there is no secret here, its very logical thing , what ever info is asked on form , you have to give that only , make sure you yourself fill the form and not agent . Dont hesitate in giving any info , on of the things i can see is that people do not fill in “Smoker” section if they are . So it has to be 100% accurate info .

      2) Term insurance + Accidental rider .

      Read archives for more

      Manish

      1. Arjun says:

        Thanks manish,

        Is is sure that Term Insurance + Accidental Rider gives 100% sum assured to nominee in case of disability. If not kindly provide suited insurance plan.

        One more question, is there any utility on this website to provide us intimation when you reply our question, becoz i have seen it other blog posts.

        1. you should look at the policy document for exact details . For getting intimation , you should subscribe to the post comment , when you comment, there is a “Subscribe to this post comments” below every post .

          Manish

  15. Srinivas says:

    Hi Manish,

    Good article on understanding Term insurance. I have one doubt on this, if we take two different term insurance plans from 2 different companies, will that help. I mean if I take a 50 Lacs from one company it self, then the premium will be more. Other wise if I go for 30 lacs + 20 lacs then the total premium will be lesser than the former one. Is it so, please clarfiy.

    Thanks in advance.
    Srinivas.

  16. shuchi says:

    Hi Manish,

    Thanks for all your aritcles, I read many of them and they make a lot of sense.

    The point raised by Hitesh Sharma is quite valid and came across in my mind as well…
    Waiting for you to answer this….

    Shuchi

    1. I answer Hitesh answer πŸ™‚ . look at it

      Manish

  17. Hitesh Sharma says:

    Hi Manish,
    This was an eye opener for me.
    I was also of the opinion that i need 10 times my annual salary as insurance cover.
    But i understand the whole concept now.
    Just a random question that arose in me, In a scenario, where a person dies and the insurance money is provided to the family, they will then have to suitably decide on how to use/invest that money.
    Is it not possible for the person concerned to make sure how that money would be spent.(something that is automatic like a portion of the insurance money directly goes in the account which invests in SIPS etc.) Because in cases of sudden death, the family is usually not aware of what is where and it is quite unlikely for people like me to have a will. in that case, either the money is used up without investing it or just plain wasted.
    I hope I didnt overtly-complicate the question.

    Hitesh

    1. Hitesh

      I dont think there is a automated way , i will have to find .
      You have pointed the issues which can create issues yourself , so please rectify it .

      1) Make a will , how tough it is ? Catch a lawyer , make a will , as simple as that , even though you are a young person and it looks like a taboo , still !!

      2) Educate Parents/Spouse about investments .

      Manish

  18. NKanani says:

    Hi Manish,

    I came across something which might help all of us to recognize the best insurance company to deal with – it is in http://www.irdaindia.org/ go to ‘Annual & Other Reports’ > ‘Annual Reports of Authority’, ‘Report for year 2007-2008’ > English Version > Page 169 – ‘INDIVIDUAL DEATH CLAIMS — 2007-08’

    We should look out for the latest report, but this is an indicator for comparison of life insurance companies.

    1. manish says:

      great

      yes , irda issues an annual report every year with lots of information .

      Manish

    2. Harpreet says:

      How should we interpret this data. I am on this page and to be honest, clueless as what is there in front of me?

      1. Harpreet

        That data isof death claim ratio and you get a feel of where the insurance companies fall in

        Manish

        1. Harpreet says:

          hmmmm, I see what you are saying. So take a scenario

          Company A
          Claims Pending at end of the year – 524
          Claims pending ( < 3 months) – 417
          Claims pending ( 3 – < 6 months) – 28
          Claims pending ( 3 – 1 yr) – 42

          Company B
          Claims Pending at end of the year – 139
          Claims pending ( < 3 months) – 110
          Claims pending ( 3 – < 6 months) – 24
          Claims pending ( 3 – 1 yr) – 2

          The company B falls in a better bracket than A, correc?

          Also, are you thinking of putting up a article on how to interpret a section of this annual report? Just checking

          1. Harpreet

            yes in a way B is better , as the historical data can give a good view about the company future claims .

            NO , i am not planning to write any article on interepretation on annual report, there is not much to do there .

            manish

  19. @@@ says:

    Good pointers to analyse and assess one’s insurance cover requirements.

    Thanks for the info

    1. manish says:

      Thanks for comment .. keep coming

  20. manish says:

    @Sachin πŸ™‚

    Hehe .. yup . I am glad he has πŸ™‚

    Manish

  21. Sachin M says:

    Robert has his own personal “wife”? πŸ˜‰

  22. Manish Chauhan says:

    @sjdate

    Yes you are correct … There are different things to be analysed before we come to the figure , here we are just trying to show how should be the attitude while planning for Insurance , thats the main idea .

    Manish

  23. sjdate says:

    There are several ways to arrive at the figure. But the most comprehensive way is the PV of the total Future 'increasing' income till one's retirement. The cover can be provided by a combination of Term / Endowment-Whole life / ULIP based on the surplus availabe from the income after providing for expenses and existing commitments. The existing assets & the provision for existing liabilities will also need to be considered.

  24. Ganesh says:

    Thanks Manish!

  25. Manish Chauhan says:

    @Ganesh

    I linked you comment and your Site on original post . Good work πŸ™‚

    Manish

  26. Manish Chauhan says:

    @Ganesh

    Kudos to you as well man .. You have completed the post with what all I missed πŸ™‚

    I accept your point that the Fist attempt has to be to Insure that Basic needs are insured , there after as things improve and his messy situation improves , He can look for higher insurance . That is something I should have mentioned but did not . thanks for your comment. Much appreciated .

    Just to repeat , the post intention was to give an idea on how the thought process should be like .

    You rock !!

    Manish

  27. Ganesh says:

    I don't think any part of the example is incorrect or unnecessary. In fact, a thought process like this can open up someone's mind completely, and arrive at a well adjudged decision on his/ her insurance needs. Kudos to you.

    But having said that, drawing a line between one's insurance needs and his means to cover premium expenses is critical as well.

    Let us take Robert's example. He has a salary of 4 lakhs per annum (33.5K per month). Expenses include 20K per month living expenses (excluding his own) and roughly 13.5K per month EMI (for 6 lakhs, at 12%, for 10 years) among many other. So he is living way beyond his means already. How will he ever pay premiums for insurance? Beats me πŸ™‚

    But it is just an example, right? Characters like Robert, though rare, do exist. Before he starts with high insurance cover, he should start building assets or save/ invest for building assets. So in my opinion, Robert should cover living expenses, loan liabilities and sufficient contingency to begin with and slowly increase his cover based on how his earning/ saving potential progress. It is unfortunate that he is in this position already, but that's the truth. So providing exclusive cover for children's education and future home, though very important, is beyond what he can afford at present. (By the way, LIC's Anmol Jeevan – a term plan – for a cover of 96 lakhs and 25 year term would cost 36.5K per annum or around 3K per month)

    Here is another view point (bit radical) on being heavily insured. The amount at stake is 96 lakhs in case of Robert's death. It's a scary thought, but in today's world it might just be enough for greedy, evil minds to devise devilish ways to stake claim for the bumper jackpot (given his current earning potential). To put it simple, the insurance amount should be sufficient enough for Robert to say "I care about you" to his dependents and not so much to hear "Hell with you" from them!

  28. Manish Chauhan says:

    @Debashish

    πŸ™‚ . Next time

    Manish

  29. Debashish says:

    Nice article Manish , just wondering what should your conversation with Ajay will be like

  30. Manish Chauhan says:

    @Ganesh

    At last it all comes to your preference and how you feel about it ..

    I will not disagree with you , you are correct that the basic thing like regular income and important goals has to be taken care of .. Apart from that its personal . But Its important .

    Personally speaking I think that given that Term Insurance is cheap , We can take care of other things ..

    What part of the example do you feel is incorrect or not necessary ?

    Ganesh , I have looked at your blog some times .. you have good understanding of things .. πŸ™‚ good luck πŸ™‚

    Manish

  31. Manish Chauhan says:

    @AnjaniSingh

    What excel sheets are you talking about ? Be more clear.

    @Asif

    for working couple , the thing you have to see is how much impact will happen with one's death , for example generally If Men dies , we need more of financial support and less if women dies , because basic assumption is that men will somehow manage .

    Regarding the death in between issue . There are two things one has to take care .

    1. Apart from your Insurance , you also need to invest for your future goal , you cant just rely on Insurance .

    2. You can/should take an increasing cover Insurance ,like 5% increasing cover from SBI or Religare .

    @Tony
    I have seen perfios.com . Its a nice things , people dont know about it πŸ™‚

    @Anonymous

    I think you go for reguler term Insurance , there is always a catch somewhere .. though i have not looked at it personally .

    @Marshal

    Thanks

    @Mohammed Ali Khan

    You are correct .. thanks πŸ™‚

    Manish

  32. Ganesh says:

    I have a difference in opinion: It is not required to cover all your dreams and plans with your term cover.

    My opinion is that the cover should be comfortable enough for one to leave back for his dependents, in case he dies. It should at a minimum include basic requirements (basic living expenses, educational needs, etc.) + liabilities (loans). Anything more than that should be based on one's comfort factor – how would he want his dependents to manage living expenses and how much he can afford.

    There will be (and has to be) a change in living style/ plans if the insured dies. One cannot plan for everything in case of his death.. can he?

    http://www.mygraffitipage.in/

  33. Dr Mohammed Ali Khan says:

    Another way to convince the " Will-I-Get-my-moneyback-with-my-insurance-policy? " guys is to compare term insurance with car insurance. All owners of cars have to take car Insurance.. By law Third Party insurance but many also opt for full car insurance. Do people who pay for car insurance ever get their money back?

  34. Marshal says:

    Really an eye opener! great work manish

  35. Anonymous says:

    Hi Manish,

    After going through through your articles on insurance i have finally decided to go for Term Insurance.
    Recently while going through different offerings i came along a plan fron Birla Sun Life.
    In that plan they are offering some return back.Do you think i should go for that.

    Ravi Maity

  36. Tony says:

    very well written, i have been tracking all my insurance policies at one place – Perfios (http://www.perfios.com). I recommend all to use it as an effective way to track every thing in your Personal Finance at one place…
    -Tony

    1. Sachin says:

      Hi tony,

      good site, but is it safe to share our account information on it?

      1. Sachin

        It depends on your comfort . There are sites where millions of people are putting their info . So it should be ok

        Manish

  37. Asif says:

    Hi Manish,

    1)For working couple, how do you suggest to plan insurance cover ?
    Just 50: 50 or anyother better way?

    2)Also the 60 Lacs for education you mentioned after 12 years is achieved by investing 20L now@10% if I die now.
    But what if I die say after 10-12 years then it will be 20L only and not 60L .. how to take care of this ?

    Please enlighten us.
    Thanks.

  38. AnjaniSingh says:

    Hi SmartInvestor,

    This is fantastic and lucid way of making people find out their Insurance Cover. I was also like Robert of your conversation. I will plan better now.

    Can you come up will excel sheets that contains questions and anwer form with the requirement ammount? This will make life easier.

    Regards,
    Anjani Singh

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