A new ad line KILB (Kum Insurance Lenaki Bimari) by a new Insurance company made me write my views on the subject.

How much Life Insurance does one need?

This question has no direct answers as no basic formula exist.Its also not to do with how much you earn?
It has nothing to do with your retirement planning ?

Many of us like to believe that we have a robust financial portfolio that would take care of our future. Interestingly, the plan would work only if funding the plan is regular. What happens if the funding suddenly stops?

When it comes to investing in insurance, many of us mistreat it as a pure tax-saving tool. With the advent of ULIP and many innovative products in the market, thanks to privatisation of the industry, insurance is also being looked at as an ‘investment’ option that is expected to pay dividends/ returns, along with securing one’s future.

Life insurance has moved from protecting life to protecting lifestyle. Today, there is a choice of innovative products that meet financial needs at each of one’s life stages — be it marriage when one assumes responsibility to protect one’s family, or at the birth of a child when one assumes added responsibility towards family or when one is preparing for a comfortable retirement. Simply put, financial needs can be classified into four broad categories:

First is protection, which ensures that if anything was to happen to you, your family continues to be financially protected and maintain the same lifestyle.

Second need is that of saving, which means that one should be able to generate required corpus to meet responsibilities, such as higher studies of your child, buying a house, etc.

Third need is that of retirement. With the average age of post-retirement life increasing , planning for comfortable retirement is becoming increasingly important.

The last need is that of investment, which helps build wealth.

The first step in buying insurance is to adequately assess ones 'needs' — what is my life stage (age, family, etc.) and what are my responsibilities (protecting my income , children’s education and wedding, buying a house, retirement, etc.)?

How much corpus will I require to meet such financial responsibilities, and how do I plan them so that even if I am not around, my family can still sail through these milestones ? Often we find these to be tough questions to answer, but we must remember that they are fatal if ignored!

More often, we do not think (or do not want to think) what will happen when we are gone — especially when one has not met all life stage responsibilities. Though the family goes through the emotional trauma, financial burden leads to additional pain. One has no remedy for the emotional pain, but smart financial planning can certainly ease the financial pain.

If one is under-insured, it could lead to a slip in family’s lifestyle in case of an eventuality. The family may need to compromise on various fronts to make the ends meet. These could include slipping to lower grade house (to save on rent), lower grade schooling for your children, cutting of expenses, including food, medical, entertainment and many more such expenses.

Clearly, while life insurance is critical to meet financial responsibilities, adequate insurance cover is the key for meeting your responsibilities. So, having a cover is not enough — having adequate cover is critical.