Under this, the insured person pays the premium regularly to insurance company, once an insurance plan is taken, and instead of this, the insurer promises to pay a fixed sum of money at the time of the death of insured or on the expiry of your specified time frame, whichever is earlier. The payment for life insurance is certain but the event for which insurance is taken is not so certain.

A Beneficiary can be a Person, Business, Trust, or Estate.

The Owner of the policy is the individual or Organization who pays the premiums and has ownership rights :

The right to name the beneficiary

The right to receive dividends and also to surrender the policy for cash

The right to change ownership

The right to assign a policy as collateral for financing.

'Death is for certain, but when it occurs is not'

Life insurance is of utmost importance for all individuals, businesses, communities, society and public most importantly. If offers protection against lack of income and compensates the titleholders of the policy. It includes other principal functions besides making cash payment on death of the life insured.

Life is unpredictable. As the head of the family, everyone wants a secured life because of their members of the family. The nightmares about your family's financial protection keep haunting you.

You need life insurance coverage because typically the dependence on income continues for individuals who are financially reliant on you, but there is no guarantee of your ability to earn consistently and for the others of your life.

Life insurance can help you safeguard the financial needs of your loved ones.

To replace income the family would have to maintain their quality lifestyle following the death of an wage earner.

Life insurance insures your life and reduces any hardship your family may need to bear in the unfortunate event of your death.

Insurance can offer a crisis cash reserve.

It can offer capital to pay "last expenses" and operating capital during a family's readjustment period.

to pay back a mortgage loan and other personal and business debts or to develop a rent fund.

To generate a fund for children's education.

To create a family group emergency fund or a fund for a family member with special needs.

Life insurance proceeds generate a financial lump sum you can use to repay a family's current and long-term operating expenses.

It facilitates savings for old age to enjoy secured and peaceful life as the earning capacity of one is reduced after retirement.

It encourages visitors to save money by causing them obliged to pay premium regularly whenever a life policy is taken.

It helps to mobilize savings of the general public to channelize it for investment and therefore promote monetary development of the united states.

It (policy) can be used as a security to improve loans and therefore improves credit worthiness of an individual or a small business.

It also offers tax benefits as under Income Tax Act, premium paid is allowed as a deduction from the total income.

Exhibit 1 : Life Expectancy

Graph of life expectancies from birth and from age 65 from 1900 to 2003.

In order to estimate the quantity of life insurance that's needed is an agent must have the ability to assess with your client which costs would be faced by the survivors resulting from the premature death of the proposed life insured, and how much it would cost to keep the same or similar quality lifestyle. A fact-finding interview with your client will commence by establishing 'qualitative goals'. Once standard of living has been planned then this figure can be assigned to meet those objectives. These figures are called 'quantitative goals'.

Qualitative Goals - Qualitative goals are "standard of living" goals. They reveal lifestyle choices that have a direct bearing on expenses, risk tolerance, and investment choices. For example; a family chooses to vacation every year in England of a month has made a qualitative decision.

Quantitative Goals - Quantitative goals are the dollar figures assigned to qualitative goals. For instance, the family who vacations in England for per month needs Rs. 22, 000 to cover their holiday.

What Is Life Need Analysis ?

"It is the actual amount that might be needed to maintain the surviving dependants for the period they remain dependants".

By considering all offsetting resources and benefits, the aggregate need for insurance can be trimmed to the unmet dependence on insurance - the gap to be filled to be able to fulfill the established goals. This net estimate may be used as the basis for a particular sales proposal. The nature of the unmet needs might also suggest the amounts and blend of types of insurance to recommend, like a specified amount of expereince of living or other form of level coverage and a specified amount of decreasing term coverage.

There are three basic methods for measuring life insurance needs :

The Human Life Value Approach and

The Needs Approach

The Capital Retention Approach

Each approach is a tool to help determine the amount of life insurance coverage needed by a person or family. Life insurance provides protection from the long lasting loss of income that comes from premature death. The approaches derive from the principle that a life has economical value. This value is called 'capitalized value of life'. Capitalized value may be represented by the sum earned as salary by an income-earner who dies during the prime of his / her life. Capitalized value may also be represented by the loss of income-in-kind including the cost of having to provide day-care, then costs of day-care or nanny services is a cost for the survivor to pay.

The objective of insurance is to displace the capitalized value of the life span insured with a sum of money that - when invested at the interest in effect during need analysis - provides an total annual income stream equivalent to the twelve-monthly lost earning power of the life insured.

This can be expressed as :

Annual Income Need · prevailing Interest Rate = Lump Sum insurance required

Capitalization of income determines the quantity of insurance needed to replace that lost income. Capital retention determines the amount of insurance needed to pay capital costs of survivors by providing a lump sum-the interest earned on the lump sum provides the income.

For example; if today's interest is 4%, the capitalized value of your life insured who earns Rs. 60, 000 annually is Rs. 60, 000 / 4% i. e. Rs. 15, 00, 000. This implies Rs. 15 lacs would have to be invested at 4% so that Rs. 60, 000 could be used annually for expenses that could have been paid by the income earner.

For the Financial Dependency of Survivors

The three phases of financial dependency and the costs that survivors will face during these phases are :

Readjustment/ Last Expenses

Dependency/ Ongoing Expenses

Survivor Life Income Needs/ Future Expenses

(all explained later in this chapter)

It provides ample information to establish the most effective opportinity for that potential loss. Considerations can be personal, property or the liability. Needs Analysis can help determine the right amount of life insurance that is appropriate for your needs. It explains the overall principals behind estimating the expenses from the death or disablement of an income earner and the provision of ongoing support for any dependants and/or the insured. Also outlines the things to consider in the planning the amount of cover for short-term disablement or illness. Again it explains the way the value of property assets should be estimated for insurance purposes and develops a thorough and integrated group of insurance policy options for this client's needs and circumstances. These other assets can help in determining the total amount and kind of insurance essential to meet the applicant's current and future needs. When estimating the actual contribution of Social Security benefits to survivors' income, you ought to know of something known as the 'blackout period'. This is the time period after the youngest child is 16 yrs. old and before the surviving spouse becomes eligible for retirement benefits. During this period, no benefits will be paid by Social Security to a surviving spouse.

Offsetting benefits may reduce or even eliminate a few of the things in the needs list. If existing medical insurance has a big lifetime benefit, any uninsured exposure related to a final illness may be limited to the deductibles and coinsurance, if any. Existing life insurance may substantially reduce lots of needs. Group life insurance will not provide a retirement income, but it'll reduce the need for insurance by a working parent working with minor children in the family. An unpaid mortgage may already be fully insured by way of a credit life policy. Social Security and other available benefits might slice the remaining need for retirement income considerably.

How much Life Insurance/ Determining the necessity for Life Insurance (AN OVER-ALL Concept)

Well, the answer isn't really how much life insurance you will need. . . actually your life insurance needs often be based upon a number of factors, including whether you're married, the size of your family, the nature of your obligations, your job stage and your goals. It's how much investment finance your family will need at the time of your death. This excellent question is to which there are as much answers as there are people to ask. Every advisor, financial columnist and relative has a formula that they consider the best. There are a variety of approaches you can use to figure out how much insurance you should have.

This section is designed to present the various need analysis methods used, as well as the pros and cons of every method. As these issues deal with how to value a life, it is definitely a very complex proposition. The method that makes the most sense to you is just about the one which may work the best for you. No method is perfect, as you are trying to hit a moving target. Life brings many changes and your requirements changes with them. A lot more assumptions you make, the more technical you can make your planning and a lot more chances there are that something won't are planned. This will not imply that you should only use simplest methods - it is to give you an idea of why it's important to actively take part in all of your planning, fully understand it, and constantly monitor it. In the end, it is your money. Remarkably, the easiest formulas can often be the best. Another considered to keep in mind is that as your other assets grow, such as retirement plans and investments, your dependence on life insurance will decrease.

What determines your life insurance need ?

Methods of calculating life insurance coverage need

Insurance mistakes

What determines your life insurance need ?

Life Stages and Circumstances

When determining your daily life insurance need, you should first think about your life stage and circumstances. Marital status, variety of dependents, size and nature of financial obligations, your job stage, and your intentions to spread your property are all factors to consider. Your need for life insurance coverage changes as the circumstances you will ever have change.

Starting Out

In the "GETTING STARTED" stage of life, you may be just beginning your job or family. You may well not have children or other dependents at this time, but it doesn't mean you haven't any obligations. For instances, if you paid for your university education with student education loans, you likely had a cosigner for your loan-may be your parents or a grandparent. Precisely the same may be true of your car loan. If you were to die prior to the loan is paid, your cosigner would be obligated to pay the debt. Under law, a cosigner is accountable for full payment of the debt in the event of default. Death doesn't erase your debt obligation.

single Adult

A growing percentage of the populace now falls in to the single adult demographic group. This group covers a wide spectral range of ages, lifestyles, and obligations.

Family Obligations-Parents

Although you may well not have a spouse, your death might have a serious financial impact on other family. If, like many adults, you are supporting your parents (either financially or carefully), your death would have a major impact, both emotionally and financially. They would not only lose the support you have been providing to them, however they would also have to produce the money for your final expenses.

Family Obligations-Children

If you are a single parent, the primary financial support for your children would die with you. If you are lucky, you might have family members who part of and help your kids if you died. If you are even luckier, they'll be in a position to provide your kids with the training and lifestyle you'd hoped for those to have. Your dependence on life insurance as an individual parent is sustained than that of a dual-parent, dual-income household, which would still have one income if one parent died. Life insurance is a cost-effective way to make sure that your kids are protected financially should anything eventually you.

Debt Obligations

In this stage of life, you might still be paying for or even still accumulated education loans. You may have purchased a residence or property with a cosigner. If you died, your cosigner would be legally responsible for the payments on the debt.

Protect Your Insurability

Another reason to buy life insurance coverage at this stage you will ever have is to protect your own future insurability. Once you get a permanent, cash value life insurance policy, it remains in effect for your entire life (assuming the premiums are paid), even if your wellbeing changes. In the event that you were to experience a serious change in health, you will possibly not be able to buy additional insurance coverage, nevertheless, you would still have the everlasting coverage you already own.

Dual-Income Couple or Family

If you and your spouse both make a living, it's possible that if one of you died, the other may be able to cope financially on the rest of the income. If there are mortgages, joint credit cards or other debt, or children in the picture, the increased loss of one income could be much more difficult to overcome. The more folks who rely upon your income while you are alive, the greater life insurance coverage you should own. If you died today with insufficient or no insurance, your mate could be required to quit the residence or lifestyle that you have both worked. Whenever there are children involved, the increased loss of one breadwinner could mean a setback in the daily life-style, not to mention any plans for private school or college.

Parent of Grown Children

Just because your kids have grown up and left the nest doesn't mean you haven't any need for life insurance coverage. you may have spent your entire adult life building an estate that you want to pass on to your children, grandchildren, or favorite charity. You should use life insurance to ensure that the bulk of your estate passes to your heirs or designated charitable organization subject to certain tax advantages.

Part of Overall Financial Planning

Determining your daily life insurance needs should not be done in isolation. Instead, it ought to be considered part of your overall financial plan, with consideration directed at your targets for savings and retirement, as well as tax and estate planning. As your life changes, your financial goals may change, as well as your need for life insurance, which makes it important to also periodically review your coverage.

Methods of Calculating LIFE INSURANCE COVERAGE Need

Several methods are used to calculate the appropriate degree of insurance for you and your situation. While they all share common features, some methods make an effort to be more simplistic, while others involve more sophisticated calculations. You may want to determine an amount on your own, using one of the simpler methods. This provides a basis for your discussions with your financial planner.

Insurable Interest

Before you commence calculating your insurance needs, it is important to determine insurable interest. Basically, having an insurable desire for a person's life means that you would suffer emotional or financial harm or loss if see your face were to die. It is always assumed as an insurable interest within your own life. However, to prove an insurable fascination with someone else's life, you'll want a relationship to that person predicated on blood, marriage, or monetary interest. You must have an insurable interest before you can purchase an insurance policy.

Family Needs Approach

The family needs approach is one of the most comprehensive methods of calculating your daily life insurance needs. It assumes that the purpose of life insurance is to repay the needs of the surviving family. This method considers the immediate and ongoing needs of the surviving members of the family, as well as income from other sources and the worthiness of assets that may be used to help defray the family's expenses (such as bank accounts and real estate).

Capital Retention Approach

The capital retention approach is 1 of 2 calculation methods under the family needs approach. This process assumes that life insurance principal will support the family indefinitely in to the future. Because you will purchase more life insurance under this technique, you'll be in a much better position if the surviving spouse lives longer than expected.

Capital Liquidation Approach

The capital liquidation approach is the next of two calculation methods under the family needs approach. This method does not provide as much continuing capital for the surviving spouse or for heirs after the death of the surviving spouse. However, it can allow you to invest less overall by purchasing a lesser amount of term life insurance.

Estate Preservation and Liquidity Needs

The estate preservation and liquidity needs approach attempts to determine the amount of insurance needed at death for items such as taxes, expenses, fees, and debts while preserving the value of the estate. This method considers all the variables of family lifestyle and the total cash had a need to maintain the current value of the estate while providing enough cash needed to cover estate expenses and taxes.

Income Replacement Approach

The income replacement calculation is dependant on the theory that the goal of insurance is to displace the increased loss of your paycheck when you die. This analysis determines an monetary or human life value and factors in salary increases and the consequences of inflation in identifying the appropriate level of coverage. While more comprehensive than the rules of thumb, this method still fails to consider special circumstances or financial needs and operates on the premise that the current degree of income provides a satisfactory standard of living that will stay level throughout the future.

Rules of Thumb

The rules of thumb are extremely basic calculations. They provide a starting place but neglect to recognize special family circumstances or needs and focus only on the most basic components.

One rule of thumb dictates that multiplying your salary with a certain number provides an adequate level of insurance, while another calculates need predicated on normal living expenses.

Insurance Mistakes

No Insurance

The worst mistake you will make concerning life insurance coverage is having a need and not having any insurance at all. Frequently, people can find all sorts of excuses for not buying life insurance coverage. It's no fun to plan for your death, for one thing. For another, there's the tendency to feel that dying won't eventually you, and then some person you read about in the obituaries. But just how many times have you heard about a, apparently healthy person dying suddenly in a car accident, leaving behind a spouse, a young child, no insurance? Sadly, it happens, so when it does, the family faces not only emotional trauma but possibly an extremely difficult finances, as well.

Not Enough Insurance

The majority of individuals with insurance are underinsured. Insufficient coverage may appear consequently of buying what's affordable rather than what is needed. Failure to review your coverage periodically could also result in insufficient insurance, even if you began with satisfactory levels. Inflation rates, your career, and your lifestyle may have changed. Your family could be confronted with a large financial gap and left struggling to keep up with the current lifestyle if you died today. Consequences could include loss of the family home, scaling back of college plans, and possibly many years of financial difficulty.

Too Much Insurance

If you purchased a big policy during one point in your daily life and then didn't adjust your coverage when your insurance need was reduced, it is possible you have too much life insurance. this is another justification to periodically review your coverage with your financial planning professional. Periodic reviews of your insurance plan can reveal opportunities to change your levels of coverage to fit your current and projected needs.

Nowreview your coverage

Trying to figure out how much life insurance will do isn't always easy, which amount will likely change with your changing circumstances. By examining your family's anticipated expenses during various periods after your death, you get a far more realistic estimate of your life insurance needs. Unfortunately, many people underestimate their insurance needs and are under-insured. Often, the purchase of life insurance is based on cost instead of what's needed. By the same token, it's possible to have significantly more insurance than you need. You might have purchased a huge policy during a particular point in your life, and then didn't change your coverage whenever your insurance need was reduced. Both of these circumstances are reasons to examine your insurance plan periodically with your financial professional. Doing so can reveal opportunities to change your degrees of coverage to fit your current and projected life insurance needs.

Determining the Need forever Insurance/ JUST HOW MUCH will do? (A General Concept)


"Today's value of the family's share of the deceased breadwinner's future earnings".

The human life value concept handles human capital. Human capital is person's income potential. The Human Life Value approach uses mathematical computation to determine how much life insurance is necessary by valuing a human life. The Human Life Value approach considers the human being to be an "income-producing machine. " It really is a device that mathematically converts your output into an amount of cash, your expected income until retirement. It determines the value today of cash that is flowing out in the future. This method targets a person's future stream of income. It considers such things as gross annual salary and expenses, year's remaining until retirement, and the future value of current rupees and translates this into an amount of insurance had a need to replace the income stream in the event of premature death.

What is your Human Life Value ?

Beyond all doubt, your life is invaluable. Yet, there's a certain worth that can be related to the financial support you offer your parents, spouse or children. This worth is known as Human Life Value (HLV). In the future, if your family doesn't have the protective blanket of your presence, they'll no longer be able to enjoy the advantages of the income you earned. Quite simply, Human Life Value is today's value of your own future earnings.

Why should you calculate your Human Life Value ?

You should calculate your Human Life Value which means you can accordingly invest in insurance plans that provide your loved ones with adequate finances and hence security even in your absence. The human life value concept goes beyond numbers and considers the complete impact caused by the increased loss of a human life and the worthiness to a person's loved ones.

How much are your tomorrow's worth?

What is your Potential Earning Power (PEP)

HLV of any person can be measured by capitalized value of that part of his income or income earning capacity devoted or designed for dependants arising out of economical forces incorporated within his being, like character, health education, training, experience and ambition. For better understanding let us see some illustrations.


'Mr. X' :- Age-40 yrs, Retirement age-60 yrs, Current salary-3, 00, 000 per annum (expected to remain same), Personal expenses-1, 25, 000, Net contribution to family-1, 75, 000 (300000 - 125000). Suppose he dies at the age of 40. Income lost by the family-175000 * 20 yrs (60 - 40) * discount rate for 20 yrs (Present value factor): 19, 00, 000.


'Mr. Y' :- Age-30 yrs, Age of spouse-27 yrs, Life expectancy of spouse-70 yrs, Age of child-3 yrs, Child's share of monthly household expenditure-10 %, Child will remain dependant till-22 yrs, Monthly household expenditure Rs. 40, 000, Out of the, amount allocated to Mr. Y Rs. 10, 000. Expected inflation in household expenditure 5 %, Money to be reserve for child's education (in present value terms) Rs. 10, 00, 000. Money to be set aside for child's marriage/ other needs (in present value terms) Rs. 7, 50, 000. Outstanding loans Rs. 15, 00, 000. Other liabilities Rs. 5, 00, 000. Medical expenditure/ emergency fund Rs. 5, 00, 000. Rate of return on low risk securities/ deposits 8 %. Hence, HLV will be Rs. 1, 66, 45, 475. In the event the rate of return on low risk securities/ deposits is 7 %, Revised HLV will be Rs 1, 81, 83, 996.

How do you determine your Human Life Value ?

This approach is about identifying how much insurance is necessary and is based simply how much income the proposed insured earns. "All people who have financial dependants need life insurance coverage. " Factors to be taken under consideration while calculating HLV are age, current and future expenses and current and future income.

The formula is;

Annual Income / INTEREST = Lump Sum (The Human Life Value).


If the total annual income of the principal wage-earner is Rs. 30, 000, the total amount of insurance needed would be (assuming a nominal interest of 8% and a long-term inflation rate of 3%, the true interest is 5%):

Rs. 30, 000 ·. 05 = Rs. 600, 000 (human life value = amount of insurance required)

If Rs. 600, 000 is invested at 5%, the return will be Rs. 30, 000 annually. Thus, the category of the insured has, in financial terms, would replace the income-earning value of the life span lost through an insurance plan with a Rs. 600, 000 death benefit.


An insured makes Rs. 42, 000 annually and the current interest is 3. 4%. She's a generous policy plus disability benefits that pay 70% of her salary. How much life insurance coverage does she need predicated on capitalization of income?

A. Rs. 1428

B. Rs. 12352. 94

C. Rs. 1, 42, 800

D. Rs. 1, 235, 294. 10

There are different school of thoughts and approaches for purchasing and calculating the needs of life insurances, which say as under :

One should purchase insurance worth 5 to 10 times the current annual income. "This is an old thumb rule that will not take into consideration current assets and any special needs the customer or their family may have". Thus,

When one's total annual income is well known, the insurance need is calculated simply as twelve-monthly income multiplied by the amount of years to service left.

One's yearly outgo towards Insurance premium should be 10% of your respective annual Income. Thus,

Life insurance need is, the financial need analysis approach. This is an approach which can take care of specific needs of an individual. Here, the basic objective would be that the insurance coverage should be sufficient to give the dependants' needs in the event the breadwinner dies early.

Steps for Calculating Human Life Value Approach

In the human life value approach, the first rung on the ladder is to get the amount of twelve-monthly income that is surplus to the individual. The surplus is the amount above the actual insured would consume himself; which gives the overall quality lifestyle for the average person and the family. The surplus includes amounts allocated to education for children, automobiles, vacations, clothing, and food for everyone in the family except him. The items to include in costs of self-maintenance are hardly any money spent on his part of housing, his clothing, food, the portion of his salary that applies to FICA, federal, state, and local taxes, and all the expenses to maintain the insured as a productive asset. The next area of the human life value approach involves plugging the given information into the mathematical model and calculating the response. To determine the surplus, subtract the self-maintenance expenses from the common income.

Exhibit 2 : Steps for Calculating Human Life Value Approach

Weaknesses of the Human Life Value Approach

Other resources of income are ignored, (e. g. , business earnings), it is calculated by using a frequent income stream over the life span of the insured since it is difficult to know very well what upsurge in income is probable.

It ignores the number of years that income (mentioned above) will be required; a person aged 25 and a person aged 65 would appear to require the same amount of coverage.

In its simplest form, work earnings and expenses are assumed to be frequent and employee benefits are ignored.

The amount of money assigned to the family can easily change because of divorce, birth of child, or death of a member of family.

The effects of inflation on earnings and expenses are ignored.

Points to Ponder :

One, HLV is a moving target and make it meaningful, you must review it once a year. Rather than chasing the revised HLV every year, the aim should be to find the broad trend right with the expectation that in the long-term, the actual and estimate will converge.

Two, don't get overawed by the HLV numbers thrown up. The `number' is just a starting point and must be put in to the context of your current ability to set aside money.

Three, remain disciplined in the sense that at any point in time you ought to have planned in that manner that in your absence, your family won't need to compromise on the yet-to-be fulfilled needs.


"It is a way of calculating how much life insurance is necessary by an individual/ family to meet their needs (expenses) if the family head dies".

These include things like funeral expenses, legal fees, estate and gift taxes, business buyout costs, probate fees, medical deductibles, emergency funds, mortgage expenses, rent, debt and loans, college, child care, private schooling and maintenance costs. This process contrasts the human-life approach.

The needs approach is a function of two variables:

How much will be needed at death to meet obligations ?

How much future income is needed to sustain family members ?

When calculating your expenses, it is advisable to overestimate your preferences a little. Using this method you will be buying and paying for a bit more insurance than you will need, but if you underestimate, you won't realize your mistake until it's too late.

With the needs approach, you divide your family's financial needs into three main categories :

Immediate needs at death, such as cash needed for estate taxes and settlement costs, mastercard and other debts including mortgages (if you don't choose to include mortgage payments within ongoing family needs), an emergency fund for unexpected costs, and school education expenses.

Ongoing income needs for expenses related to food, clothing, shelter and transportation. These income needs will vary in amount and duration, depending on lots of factors, such as age of your spouse, age of children, surviving spouse's capacity to earn money, your debt (including mortgages) and whether you want to provide funds for your surviving spouse's retirement.

Special funding needs, such as college funding, charitable bequests, funding a buy/sell agreement or business succession planning.

Analyze various 'Family Needs' if the family head dies !

The goal of the needs approach is meeting the full total needs of the household following the death of the breadwinner, both during the death and in the future. To calculate the quantity of necessary life insurance coverage according to the approach, accumulate all your funding needs to determine the total needs of your beneficiaries. Include immediate needs, debt elimination, transitional funds, dependency funds, spousal life income funds, spousal education funds, children's education funds, and retirement income funds. Subtract current insurance plan and other available assets out of this total. The difference, if any, represents a quantity that life insurance coverage proceeds and the income from future investment of those proceeds can cover.

Amount of money had a need to meet these needs XXXX

Less : Total Amount of existing Life insurance coverage and financial assets XXXX

Amount of New Life Insurance that should be purchased XXXX

Cash Needs/ Immediate Financial Needs

"Lump-sum needs at death require immediate cash"

The financial-needs analysis approach identifies survivors' immediate cash needs and ongoing income needs, and assumes life insurance proceeds will be liquidated to meet them. This approach estimates the family's financial needs if the client were to die today. It takes into account both immediate and ongoing needs. Because the purpose of life insurance is to invest in the unfunded part of these objectives, all existing funds that provides part or all of these needs should be considered. For simplicity, you might suggest using 70 percent of the insured's current income as the mark level, rather than calculating each anticipated need. An increased or lower percentage may be more accurate depending on family's circumstances. Potential sources of income include Social Security, employer-provided plan benefits, group life insurance and the surviving spouse's earnings.

These will be the immediate lump sum cash needs at death, including administrative and burial expenses, tax liabilities, uninsured medical bills, estate settlement costs and debt liquidation.

Final illness costs that insurance will not cover

Repayment of Outstanding Debt

Estate Taxes

Probate and Attorney Expenses

Funeral, Burial, Cremation Expenses

Funds to cover survivors' ongoing expenses

An Emergency Fund

Multi-Period Income Needs/ Ongoing financial Needs

"Require continuing income until the dependents are self-supporting"

Some financial journalists recommend that people have life insurance coverage and liquid assets in amounts which range from five to seven times their annual income. This simplistic approach is straightforward to clarify and requires few computations. But it ignores specific information about assets your client has accumulated and other resources of funds such as trusts and inheritances, and so may over insure or underinsure him. More sophisticated approaches translate your client's needs into estimated costs, and evaluate assets and existing coverage to determine how a lot of the funding has already been in place. Any deficit between your intended goals and current financial sources is generally a candidate's additional coverage.

The monthly income that the breadwinner's spouse and dependents will need after that head's death.

Readjustment period income needs - an interval of one or two years following insured's death where the family should receive the same income as when the breadwinner was alive. The readjustment period income offers a cushion period for the spouse to adapt to their new situation.

Children's income needs during their dependency period - when the insured's children are under 18 at the time of that person's death, the family should receive income through the 'dependency period', i. e. the time between your breadwinner's death until the children reach age 18. The income needed can vary greatly from family to family depending on if the spouse is on the labor force or plans to remain at home to provide for the children.

The surviving spouse's income needs - for a spouse who's under age 60, who have been unemployed for a long time and whose youngest child has already reached 16, the need for income in the case of the family head's death is particularly urgent. This is especially true if the insured dies through the 'blackout period' (the period from enough time 'Social Security survivor benefits' terminate to the time these are resumed).

The spouse's retirement needs - the necessity for the surviving spouse's sufficient retirement is highly recommended.

Special Needs

Any additional family needs that are not covered by the above categories. Different funds can be established to appeal to these needs, including an education fund, a crisis fund, a mortgage-repayment policy, and other major-debt-repayment policies (for cars or other non-mortgage long-term debt).

Steps for Calculating Needs Approach

Adjust your salary downward - Decreasing your salary takes into account the actual fact that family expenses will decline with the loss of an adult family member.

Add up all funding needs - This inventory of funding needs is a very detailed description of the full total needs of the family. The full total needs of the beneficiaries are the following: immediate needs, such as needs for a funeral and other expenses; debt elimination needs, such as needs to pay back debts like bank cards and mortgages; transitional needs, which include helping the spouse gain needed skills for better employment if necessary; dependency needs, such as needs for taking care of and educating children and sending them on missions; spousal life income needs, such as needs to care for the spouse so she or he doesn't have to work; and education and retirement needs, like the need to take care of the surviving spouse in retirement.

3. Subtract current insurance coverage and other available assets - The result gives you the amount of additional coverage you'll need.

4. Determine the income stream replacement that would be needed to meet the family needs and then calculate the amount of money required to provide the needed annuity - The difference in the middle of your total needs and your current coverage and available assets determines the amount of additional insurance coverage that will be necessary to meet up with the needs of dependents in the event that the breadwinner dies. While it is not necessarily desirable, some couples find it necessary to have two breadwinners. If so, couples should consider having life insurance coverage for both spouses.

If your goal for having life insurance coverage is income replacement, know that your income needs changes over time. Based on your salary, how big is your loved ones, your investment plan, and the growth of your investment assets, the amount of income that will need to be replaced increase significantly as children are born and raised; however, this amount will decline as your kids leave college. Therefore, instead of having a single product to meet all of your needs, it can be advantageous so that you can utilize multiple products that will provide you with maximum protection at most cost-effective rate. The products should take into account your goals, budget, and growth in investment assets.


Rohit and his wife, Saroj, are estimating the correct amount of life insurance to buy on Rohit's life. They first estimate their immediate needs the following :

Final medical expenses: Rs. 5, 000

Estate settlement costs including funeral expenses: Rs. 37, 500

Debts, including credit cards and mortgages: Rs. 317, 000

Emergency fund: Rs. 100, 000

Subtotal: Rs. 4, 59, 500

Next, they estimate ongoing income needs, such as:

Providing for their dependent children's needs for a period of time: Rs. 500, 000

Saroj's income needs until her retirement: Rs. 450, 000

Saroj's retirement income needs: Rs. 380, 000

Subtotal: Rs. 13, 30, 000

Adding the sub totals together, Rohit and Saroj estimate that, should Rohit die, their family would need Rs. 17, 89, 500. Then they determine that assets available to offset their needs include:

Bank savings: Rs. 40, 000

Investments: Rs. 2, 20, 000

Retirement assets: Rs. 2, 50, 000

Existing life insurance coverage on Rohit's life: Rs. 3, 00, 000

Subtotal: Rs. 8, 10, 000

The difference between their family needs (Rs. 17, 89, 500) and their available assets (Rs. 8, 10, 000) equals their life insurance coverage need (Rs. 9, 79, 500).

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