How much Term Life Insurance Cover do we need? - YouTube

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Namaskar, my name is Mukul and you are welcome to the asset yogi

Friends, many subscribers out of you have asked me a question

How much insurance should we cover?

So in this video, we will discuss two methods

In one method you can calculate your total financial liabilities

For how much soever time do you want to take insurance

What are your total family liabilities? And in the second method, we will discuss the

thumb rules. So stay tuned with the video

Music

Before talking about both the methods first we will discuss

What type of insurance should we take? See there are two types of insurance

The first is your plain vanilla insurance which we call term insurance

The second one is your endowment policies

Which we call whole life insurance

The whole life insurance and endowment policies

Includes insurance plus investment

This means there is the death benefit also and investment also

This means your money gets multiplied.

You will get more money after 20 years or 25 years

But my preferred mode is term insurance

Because you shouldn't mix insurance and investment

When you are taking insurance then take the plain vanilla insurance

And invest the remaining money elsewhere.

You can invest in FD

You can invest in PF and mutual funds also.

And I am saying this because

Insurance as an investment doesn't perform well

I have seen the returns of the last 15 years, 20 years, 25 years

You don't get the annual returns of 5 to 6 %

In fact, I have made a video on that

You can watch that video

And I have also made a video on term insurance

You can watch both the videos

You will find the links in the description.

So it depends on you what type of investment you wanna take?

Take whatever investment from the two

But you have to take an insurance cover

What is the total coverage that you want for your family?

We will talk about that.

As I have told you earlier

The first method is that in which you calculate all your expenses

for the next 15 years, 20 years, 25 years

For whatever time you take insurance. We will take an example in this. We are calculating

Insurance cover. Let's say the age is 40 of whom we are calculating insurance cover

And let's say his annual income is 10 lakh per annum

So according to that

We want to see how much insurance cover he should take

If there is a person of age 40 years and his family members are dependent on him

He is the only earning member in the family

So what we have to do is, calculate your expenses

What are expenses? Monthly expenses, rent

How much money is spent on groceries?

How much is the bill for your electricity?

How much are the fees of the children's school? How much is spent on transportation?

When you go out for lunch or something then how much is spent on it?

And the other miscellaneous items you wanna consider

Make an excel sheet of what is your total expenses

So I have estimated that your expense is 30,000 Rs per month

We are talking about the age of 40 years

What will be your annual? This is 3.6 lakhs per year

So it is 3.6 lakh per on today's date

And we are considering whoever is taking the insurance

Wants to take the insurance for his retirement. This means his age will be 60 years

So in the coming 20 years, his expenses will increase

So I have considered a 6% inflation rate

So how will he have to spend it after 20 years?

So his expense will be 11.5 lakh per annum

So we know about the starting, we know about today's date

We know about the expenses of 20 years later, how much will be expenses per year

So we will calculate an average yearly expenditure

I have calculated the average yearly expenditure. That is 7.3 lakhs per year

So what will be the expense of a total of 20 years? I have done 7.3× 20

Your family needs 1 crore 46 lakhs Rs

So if by any chance a mishappening happens with you

If your family needs support then all these expenses should be covered

for the next 20 years

The next is your liabilities and the assets

This can also happen that you have bought a car or a house

And there are some EMI payments

So you have to add them also.

Let's say your EMI is 30000 per month

I have taken total EMI here of car, house whatever your total EMI is

Add them here.

And let's say the EMI will go on for 10 years

So 30000 × 12× 10. You will need 36 lakhs Rs in total in the next 10 years

They will become your liabilities

You may have some assets too

Now this person is 40 years old

He may have done some investments

Maybe he has some FDs, provident funds, mutual funds, stocks, real estate, gold

All the investments in total

Let's say he has 15 lakhs worth of assets. So you will do liabilities - assets

He has 36 lakh of liabilities minus 15 lakh of assets

We will get liabilities of 21 lakhs here

Now this is also possible, it can be vice versa also

What assets are more than the liabilities

So in that case, you will take the negative value

And you will subtract that negative value from here

Now our liabilities is greater, which means

We have to add that money to this To get what total coverage we are trying to get

Now this was about liabilities and assets

Then there are your remaining financial goals. Maybe you have 1 or 2 children

And you are expecting the expenses of their education. We have considered only one child

You can do the calculation according to yourself.

So you need 20 lakhs Rs let's say for kid's education

in the next 5 or 10 years

Whatever you think is the fair amount, the amount that will be spent on college

You have already considered school fees here.

But you will consider a college education here. I have considered 20 lakhs

You can consider any amount that you want. Whatever amount you'll need for marriage

I have considered 20 lakhs for that also. So this amount will be 40 lakhs

What are our total requirements for the 20 years?

This is 40 lakhs, 21 lakhs here, and here is 1 crore 46 lakhs. You'll add all three

The requirement will be 2 crores 7 lakhs after adding them

This is the requirement of total coverage. You can calculate this much insurance coverage.

So you can also calculate in this way. Now we will go to the thumb rule method

The second method is the thumb rule method. In this, you'll get a multiplier according to the age

In which you have to multiply it by annual income.

For example, if you come in the age bracket of 20 to 40

Then you should take 15 to 20 times annual income insurance cover

The people who are 40 to 50 years old should take 10 to 15 times their annual income cover

The people who come under 50 to 60 age group

They can take 5 to 10 times of annual income cover

See, the logic here is quite simple.

Whatever your annual income is it gets replaced for the next 15 to 20 years

If there is any mishappening

Then the income that goes for the next 15 to 20 years

to your family

They would get this benefit. That's why these thumb rules are kept. If someone

is in the age group of 40 to 50 then at least he would get his benefit full the retirement

These thumb rules are kept according to that

Let's get back to our old example

If someone is in the age bracket of 40 then he should take 15 to 20 times

of annual income cover. If his income is 10 lakhs per annum

Then what will be his cover? It is 1.5 to 2 crores

We gave calculated according to the expenses in our old example

Then according to that, it was 2.07 crores

So now,

You can also calculate it by yourself

You can calculate it by both methods or you

can go the higher side.

It depends on you how much insurance cover you wanna take

So we talked about both the methods that how to calculate insurance cover

I will give you two tips here. See consider you are 20 to 25 years old

And you are taking your insurance

And maybe you haven't planned many of your financial goals

And maybe you are not married yet. And maybe you don't have children

then you should take insurance cover according to that.

But you should review your insurance cover every 5 years

And the second thing the sooner you take the insurance cover

Then your premium will be low.

Then I would recommend that take the insurance as soon as possible

And you should review it every 5 year

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Till then keep learning, keep earning, and be happy as always