What is adequate life insurance coverage?Kapil
“Death is certain and Life is uncertain.”
You work hard, You earn , You save. You plan and have dreams. You do this to secure your future and the future your loved ones.
However, your untimely demise, can jeopardize the future of your loved ones. Emotional needs, of your loved ones and your dependents cannot be replaced or compensated.
However in case of financial needs, you can always plan ahead, so that your loved ones are left behind with adequate financial resources to take care of their future needs. This is all the more important in case you have dependents who are financially dependent on you (like your non-working spouse, children , old parents etc.).
This is where “adequate” insurance of “life” assumes such a significance.
Life Insurance is the foundation of financial planning and you should ensure that it is properly planned, first.
Many a times , I am truly surprised when I ask clients and people about their insurance coverage. I get responses like the following :
– “I believe I am adequately covered” (– Salary 20Lacs/yr, Home Loan 40K / month, Car Loan 3Lacs, 2 young school kids, Insurance coverage – sum assured around 40Lacs ONLY – 2 policies, annual premium around 2Lacs) And he believes he is adequately covered. Badly mistaken……………
– “I have one investment flat, and one flat in which I currently live – In case something happens to me , my wife can sell that flat and that can easily service the needs of the future”. I told him, why does he need to wait for his death, in order to sell the flat. Why is he not doing it now.? An hence why should his spouse sell the property to finance family needs ……………? This person understood the crux and went ahead to increase his insurance………….
– “My father tells me about the futility of insurance – See, he is 65 yrs of age and he is still going hale and hearty” – This is such a stupid response. It is really difficult to believe seemingly intelligent people making such comments………….
– “I will get 20Lacs at the end of the policy” Upon asking , how much money his wife will get in case he were to die today – His reply was ” I do not know, I will have to check my policy”. He does plans his weekend outing to Lonavla and Khandala or other places near Mumbai along with friends meticuluosly. But hey , no plans for life………
– ” I have a child insurance policy which will give me 15 Lacs in due course apart from my endowment life policy of 20Lacs” — Again , this fellow has been sold into these policies is paying roof high premiums for paltry insurance. And by the way, why insure your child , when you yourself are inadequately covered. Also does one really need child’s life to be insured to cover financial needs. No……….
– ” I have a ULIP (Unit Linked) policy and the agent has promised me guaranteed (LOL……..) returns in next 15 years” ……… I am sure the agent also must be laughing his way to the bank ………..
– ” I had bought policy from LIC to to save taxes. And I am happy to save on taxes” … Now buying insurance just to save taxes is one of the worst mistakes one can make. Buying Life insurance to save taxes or to invest is just not right………
These are responses of intelligent,hardworking , well educated people. However, they fail to get the financial planning act together. I am sure that they can also put in little extra effort to get this part right as well.
As you can see, all the responses above have one underlying theme – all of the different sets of people have inadequate Life Insurance coverage. In some cases unplanned, some have planned but due to thier ignorance have been sold products which will truly not help in case of insurance.
Let us face it , no one likes to really think about his own death. However, the truth also cannot be denied that death is indeed certain.It can happen in (a) normal course of time (let us say avg 70yrs) (b) earlier in an untimely fashion (let us 30 -45yrs) — this is prime time when dependents really need you (c) or later than normal. (>85+ yrs)
All the three cases can be properly planned for.
So, that brings us to the question — What is adequate life insurance coverage?
Simply put, an adequate life insurance coverage should cover the current liabilities of the descedent and should financially secure the foreseeable future needs of the dependents in such a way that the lifestyle of the dependents remains unaffected going forward and life goes on normally as if nothing truly happened……………..
Later we will see , how much insurance do you need. Or How to arrive at the magic figure of sum assured. You can read the post here at How much life insurance do I need?