Term insurance is a must. What if both the parents die in an accident? Who will take care of daughter’s all expenses and , education costs and marriage expenses etc?
Generally when Term.insurance is decided , ppl dont give a proper thought for the amount required. They just take 1 cr or 2 cr etc.
But there is a scientific process to arrive at it.
Just like we need capital in business, we need capital for our family, if we consider family as business enterprise.
There are 4 types of capital and their anology in family case
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Working capital = to cover Your monthly expenses.
For example, if you have monthly expenses of
50 k that means yearly 6 lakhs, so to get 6 lakhs yearly with 6% Guaranteed returns , you need a capital of 1 crore. So if you keep 1 crore in a fixed deposit of SBI, your daughter will get montly 50k for expenses. So working capital works out to be 1 crore. -
Fixed Capital- this is Your children’s Higher education, and marriage expenses and also if possible their settling down funds.
Suppose your daughter wants to do MBBS and today the cost is 50 lakhs and by the time she does it , cost will be 2 crore then thats fixed capital, for marriage may be another 1 crore and for settling down it means if you want to provide a seed capital to help them start a business or giving help to settle a clinic , 1 crore ,
So fixed capital works out to be 4 crore. -
Outward liability - this will.include all your loans , like.home loan, car loan, personal.loan and also those loans of others where you are a guarantor.
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Emergency capital- thos can be anywhere from 20 lakhs to 50 lakhs…
So total capital is addition of these 4 types of capital…this much Term.insurance you should take to cover these needs…
There is more sophisticated way also where, your earning capacity in next 20-25 years is calculated based on your education and experience and then extrapolated and then arrived at your Human Life Value.
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