How much insurance do I need for my family?

A Sunday is a relaxing day. A late morning, sipping a cup of tea and reading the morning newspapers — especially the glossies. Love the advertisements in those — the latest gadgets, that fancy car.


Yes, the products are all very good, but we don’t end up buying most of them. Even if we are genuinely interested, we like to research, check around or talk to friends. We do not buy everything that is advertised repeatedly. But when it comes to insurance, we are pressurized by that persistent, glib-talking salesman, as we believe that the product on offer is the one made with only us in mind.


No wonder, I know more people who complain about their insurance than those who crib about their cars. Come to think of it, insurance will possibly last longer than their vehicle.


My family’s needs, not mine:
Insurance should be considered as a protection against risk, and you must focus on the sum assured of the policies you have. How much insurance do I really need? That’s an odd question to answer, as the benefits of life insurance accrue to my loved ones, and not me.


Don’t forget to rephrase the question to cover your family’s needs. If I have a home loan for the apartment I live in, I must buy term insurance for the outstanding amount of the loan right away, and, in addition, consider the regular expenses that my family is dependent upon me for.


Calculating expense & liability protection:
Let us consider a working example. You, aged 35 years, have a home loan of Rs 40 lakh with an EMI of Rs 40,000 per month for the next 18 years, and your family is dependent on you for living expenses of Rs 5 lakh annually.


The calculation of funds required by your family in the case of your demise will depend upon future rates of inflation and expected returns on the investments from the pool comprising insurance proceeds and other investments available. The assets required rapidly climb if inflation rates nudge up by 1% every year, and returns drop by an equal amount. If we were to consider requirements of the family to age 85 years in this example, the assets needed today spiral up dramatically.

Remember this does not cover other future goals (child’s education and the like) that may be aspirations of your family. Move on your life insurance right away.