As you are reading this article I believe that you have recognized the value of life insurance and are in a process of evaluating your insurance needs or looking for a Life Insurance Calculator and I hope you will be signing up for an insurance contract with the best term life insurance company very soon. First things first, let me congratulate you for realizing the value of Insurance and let me take a chance to remind (read warn) you once again that your journey for buying life insurance shouldn’t stop here and I really hope that you will turn your wish to reality and fulfill the commitment of buying term life insurance which is the corner step for securing the future of your family.

Now coming to the main question of this article, how much insurance do you need is always a tricky question and to be honest there is no straight forward answer to this, as a thumb rule many experts will ask you to take at least 10 to 20 times of your current annual package (CTC) but to practice in life that is not the correct way to address the insurance needs. I agree that the views of no two people can be same and it is ideal to assume that we have different answers or thumb rules for this important question. Today let me take a chance to list my views on calculating life insurance needs based on which I hope you will be able to get a conclusion of how much life insurance do you really need?

Your Earning Capability

Your earning capability to earn can help you in deciding the basic value of life insurance that you should buy and even experts may not be wrong in suggesting 10 to 20 times of your current annual package as life insurance but the thumb rule have its own set of flaws, let me cite an example consider Mr. Chakravarthy aged 30 years earning Rs. 500000 per annul decided to take insurance based on the thumb rule he have to take insurance ranging between Rs. 50 lakhs to Rs. 1 Crore but the flaw here is Mr. Chakravarthy current package is 5 lakhs and he have potential of earning much higher than the current package as years pass by and it will not be outrageous to say that his package could be at least Rs. 7.5 lakhs after 5 years assuming a 10% hike (in simple terms not compounded, even I know that 10% hike every year results the packages after 5 years to Rs. 805255) and after 10 years he will be capable of earning a minimum of 1 million rupees even with moderate hikes. Now returning to the question of insurance required the insurance requirements of Mr. Chakravarthy will be changed after a decade and he should buy insurance again at the age 40 years, thanks to inflation now his family needs much higher corpus in case if something happens to him and they may not be able to keep up their living standard as before with the proceedings from his insurance policy that he took 10 years ago and buying additional insurance again at that age may not practical all the times.

So what is the right figure with respect to the current annual income? For this you should be considering your income after 10 years for people aged between 25 to 35 years or simply (Your Current Annual Income + Minimum of 100%) and for people aged above 35 years the value considered should be the income you are expecting to earn after 5 years or simply (Your Current Annual Income + Minimum of 50%) and multiply the value with the figure that you are comfortable with after considering your life style expenses, bills, education costs, etc. and the way you want your family to lead their lives in your absence (my thumb rule suggestion is to take a 10 multiplier if you are frugal with limited expenses and less discretionary expenses or take a 20 multiplier if your family have high life style expenses with huge discretionary expenses).

Assuming that you don’t have any loans, liabilities to handle and have no plans to avail loans in future you are good to go with above figure and end reading here, for rest continue further.

Consolidate Your Debts & Liabilities


List down all your debts, loans, liabilities (everything is same but mandatory to make a list) and combine that figure and add this figure to the one arrived in above step. Why this? Because your family may not be in a place to pay off your debts and a major chunk of the proceedings from the life insurer may get exhausted for writing off your debts, so it is essential to cover the whole of your debts and get coverage for that amount as well.

Think Future

Sometimes your current requirements may not fulfill your future needs, you may be married with no kids or a single kid today and you need to be ready to handle the expenses of having a kid or two (sometimes things go beyond your control, pun intended), budgeting for these expenses is one part of financial planning but handling the risk of these costs should be considered while buying your life term insurance policy.

Consider Assets You Own

You keep on adding things all the time and adding up all these stuffs will raise the costs and now it’s time to cut the burden, list down all the assets you or your spouse own (please be generous enough while considering the value for real estate assets) or your family will inherit for sure (like building on the name of your father and you are the only son, which is safe to assume that you inherit) add them up all and just deduct the same figure from the life insurance value you need.

Human Life Value

It is always tough to calculate the Human Life Value (HLV) for which we have emotional attachment but for reasons known to us primarily for peace of mind and to cover the uncertainties that life have in its store for us it is your responsibility to cover financial aspects of your life to safeguard the future of your family.

In financial terms Human Life Value (HLV) is the sum of your lifetime earning capabilities which is certain if you live forever and for us that is not enough while calculating the life insurance value to change it HLV could be defined as follows which in my opinion is the right amount of life insurance you should but today.

Considering all these I hope you will make an informed decision, and I hope that you will be able to make your purchase considering this theory as life insurance calculator.

Between Us: What is your view on my definition of life insurance that is required? Please share your views on this. In case if you have already bought life insurance please calculate yourself if you are adequately insured and in case if you are under insured please take the right steps to increase it further.

Life Insurance is always considered as the foundation stone by the financial experts for good financial planning and is an important thing for people to deal with for safe guarding the financial interests of the family as it deals with the after math of unfortunate events. In this article I have tried to cover life insurance basics and also listed out the top reasons why one should purchase life insurance and who really doesn’t need to buy life insurance.

Life Insurance Basics – What is Life Insurance?

Life Insurance is a contract that we sign with an insurance company to protect our loved ones in case of death of the insured person for which the insurance company usually charges premium (read money) depending on the risk profile of the person. In simple terms, life insurance helps you in securing the financial status (including your liabilities, provided you are properly insured) of your family in case of an unfortunate event.

Why Does One Need Life Insurance?

As stressed out, the loss of a person for a family is irreplaceable and if he/she is the breadwinner one cannot imagine the stress that a family have to handle at a time of unfortunate loss, just imagine a family having no/proper income source and have bills/loans/liabilities to handle and you will understand the importance of Insurance and why you should have one.

Life insurance is primarily for those who are the breadwinner of the family and your family is financially dependent on you and it is a must if you have loans/liabilities. For a family who are dependent on a single person’s income, life insurance can help them in replacing the income of the person in case if he/she dies and will help with in handling the crisis.

Top Reasons Why Should Buy Life Insurance

You Never Know the Risk

Every one of us is certain that nothing will happen to us and even I pray for the same but we never know what’s there in store waiting for us, to speak worse it could be an accident, unexpected illness or could be in another form. So it is one’s primary responsibility to fulfill the financial interests of the family and no one wishes our loved ones to face financial stress for handling recurring expenses like food, bills, education, etc., in our absence.

Loans and Liabilities

Loans could be in the form of car, home or personal and your family may not be in a place to handle the debts that you have and your death shouldn’t be debt for your family and it will be an extra burden to carry in addition to the emotional loss which they already have.

You Can’t Buy Life Insurance When Required

Imagine a situation where in you want to buy the insurance but postponing it for various reasons known to you and in the due course if you develop a critical illness with a risk of life (if not immediately but is certain in future) and in that moment even if you wish to buy insurance you may not get it depending on the risk profile you carry, so it always makes sense to buy insurance when you really don’t need it and just in case when you need it will come handy.

Peace of Mind

Life Insurance Secures Family

What else can give you peace of mind other than insurance which gives you protection for the uncertainties that we carry on our shoulders, although no amount of money can ever replace the loss of a person but it gives YOU peace that your family will ever need to suffer in your absence.

Tax Benefits

Tax Benefits offered on insurance premiums should never be the reason but to make you rejoice or to stress importance of the insurance government is offering tax rebates (under section 80C in India) for the amounts you pay as premiums with ceilings as applicable.

Who Doesn’t Need Life Insurance?

Is life insurance a must have for everyone? NO, if one matches with anyone of the following criteria they definitely don’t need Life insurance:

  • If you are single and have no dependents.
  • For those whose spouse is earning enough to handle the finances.
  • For those who doesn’t have any financial liabilities.
  • Your kids have grown and are financially settled.
  • For a person whose family is wealthy enough to handle finances even in case of your absence.

In this article I have tried my best to cover the basics of Life Insurance, its importance and role it can play in a person’s life and the essential categories of people who need to buy insurance. In future articles I will cover the kinds of insurance policies offered by insurance companies in the open market and what type of insurance policy you have to choose in case if you are planning to buy one.

Between Us: If you are one already having insurance and have stumbled upon this article please share your views and reasons why you have bought your policy and what made you choose it? Our readers might want to know about real life examples and learn from others, after all sharing is caring.