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The amount of insurance you would require depends on your needs, along with current or expected circumstances

IT IS said that destiny is not by chance, but by choice. While this may or may not apply to all aspects of life, when it comes to financial security of our near and dear ones, it isn't very far from the truth. One of the many steps to shaping our financial destiny is to provide adequately for the future. That's where insurance comes in. But often, the question is not about whether insurance is needed, rather how much is adequate?
While no one wants to be underinsured, overextending oneself is also not advisable. For those who can afford an insurance policy, it boils down to two main questions. First, what is the exact coverage that one requires? Second, what product option does one have?
While there are no straight answers to this, certain guidelines can help us do some serious math.

The amount of cover required depends on individual needs, along with current or expected circumstances.

This would include This would include whether one is single or married, has children, financial obligations such as personal loans, mortgage, school fees, current income, assets, life expenses and lifestyle. While most of these may pertain to our family, one needs to account for expenses that will immediately precede or follow one's death and these include medical bills, credit card bills or taxes. You need to add these up to know your family's needs.

The next task is to determine your current sources of income, besides salary, which will be available to your family even after your death. These include stocks, bonds, mutual funds and income from property. Subtracting the needs from the assets gives a fair picture of what you need to provide for.

But the answer is not always that simple. Today, life insurance is also a significant element of your personal investment portfolio that secures your financial future as well as that of loved ones. The topics below shed some light on how to approach insurance.

When does one start? Most people tend to push this investment for their older age but one must realise that there are many benefits from buying these policies early on. Insurance is long-term product and needs a longer gestation period. When you opt for life insurance, you qualify for multiple benefits such as tax deduction and long-term capital gains.

There are several plans in the market, which cover you as well as your family. Before choosing a plan, study all options available. Do not rush into choosing a plan as this would result in opting for something that is not entirely suitable and one that you will be committed to for a very long time.

Also, one needs to look beyond general incentives such as tax breaks and savings through life insurance.

Insurance addresses four key needs in a person's economic lifecycle, which includes savings, protection, investment and retirement. Financial literacy initiatives by the insurance companies play a big role in educating customers and increasing penetration.
How much insurance do you need?

Once you decide to opt for life insurance, consider your complete financial position, future commitments and liabilities. Assuring adequate financial security to your family members is a top priority for every working individual, given the uncertainties of life. While there may be many ways to protect family against life's uncertainties, none has the charm of insurance products--the surest way to mitigate risk.

For working individuals, it is the best way to regulate savings.

The things you must consider before investing in any insurance policy are coverage of that policy, benefits in the long run, and term and premium amount to be paid Choose a policy depending on your income so that you will not face concerns over premiums. Note that the inability to pay premiums is the main reason to discontinue the policy. Take a good look on the plan and the benefits. While you take feedback from financial consultants, it is important to do your own study either through discussions with people in the know or desk research.

Concept of human life value: The concept of human life value (HLV) is something that we all hear about, especially from insurance advisors, but do not really know how to calculate because there is no definitive source of information on the subject.

As there is more than one methodology to calculate HLV, it becomes even more challenging to understand.

The most common definition of HLV is the expected lifetime earnings of an individual, that is, what is the total income that the individual is expected to earn over the remainder of his working life, expressed in present rupee terms.

For the uninitiated, inflation eats away the value of money; a rupee today is worth more than a rupee tomorrow and therefore, you need to suitably discount future earnings to express the value in present rupee terms.

HLV, in my view, is the monetary value of all the yet-to-be fulfilled needs of the dependents plus all the outstanding liabilities. Even though expected income may not be sufficient to meet the needs, the needs are still there. And an individual strives to meet the needs of his dependents.

So, the HLV thrown up by our definition is a target that you should have in mind, you can and possibly may have to plan for a lower HLV, but don't despair over that.

The important thing is to set a goal for yourself so that your dependents are well taken care of, whether you are there for them or not.

Happy Investing!!

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