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A Simplified Guide - How to cover yourself prudently with life insurance

A Simplified Guide: How to Cover Yourself Prudently With Life Insurance?

by Holistic Leave a Comment | Filed Under: Insurance

When I say “Cover you with Life Insurance”, I do not mean a Herculean task.
Not even a fraction of that.

Unlike a financial plan, insurance planning—being a part of it—is a very simple and less demanding task, so that you can focus on your investments and capital growth.

Yet, life insurance is as significant. It is your replacement to provide financial security for your family, in your absence.

How Do I Begin My Insurance Planning?

You may have heard, “Time is Money”.

But both—time and money—literally are the two things one needs to consider while getting insured. Time and money in the right proportion will make your insurance to be the most effective.

“I need a ‘sum’ of life cover for a ‘number’ of years”, Simple as that.

Today, we’ll learn how to find the optimal Sum Assured and Term so that your insurance plan will complement your financial plan.

    1. Finding The Optimal Insurance Policy Term
    2. Calculating The Optimal Life Cover

Life insurances are meant to act only as a backup plan. If you survive the insurance term, the policy will be terminated with no benefits. And your primary focus is your financial plan, not a worst-case scenario that may never happen.

That being said, let’s start with…

1. Finding the Optimal Insurance Policy Term

To put it straight, the optimal term for your insurance is the number of years between today and the year you are planning to retire.

Optimal Insurance Term = (Retirement Age) – (Current Age)

For example: If your current age is 35 years and you are planning to retire by 60, the difference should be the optimal insurance term for you. In this case, it is 25 years.

Optimal Insurance Term = (60 Years) – (35 Years) = 25 Years

The rationale behind this sort of calculation is very simple. Yet many of us overlook this simple idea and choose a term up to our life expectancy.

The Rationale behind Choosing Insurance Policy Term:

As seen above, life insurance is your replacement to provide financial security to your family.

By the time you retire, you would have attained or have enough savings to attain all your financial goals. And hopefully, your children will have become financially independent, too.

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At that point in life, your life insurance policy will have no real purpose. It is because, speaking strictly in term of finance, nothing will be at stake by then to insure.

Moreover, once you retire, your active income stops. This means you will be paying your policy premium from your retirement corpus.

It is an unnecessary expense from your limited resource of savings.

On a side note: be sure to choose the right retirement age in your financial plan.

For example: you may have planned to retire a few years early, say at 55 years of age, in your financial plan. Just in case, if you have to extend it later due to uncertainty, your life insurance policy will expire at the predetermined date. Then, you will have to get a new life insurance policy for higher premium or spend those years with no life cover.

Think long-term, account for uncertainty; choose—not ideal—but practical retirement age.

So, have you calculated your optimal insurance policy term?

Keep it ready, because you’ll need it to calculate the optimal life cover that fits your financial plan.

2. Calculating The Optimal Life Cover

The optimal life cover for you is what we call, your Human Life Value.
Of course, it does not mean an actual value for one’s life, which isn’t quantifiable.

Here, the Human Life Value signifies today’s value of all the money you will be earning. That is the sum of your next paycheck to your last paycheck at retirement.

For example: Imagine a person, Kishore. He is 30 years old and his annual income is ₹12 Lakhs.

In that case, considering an ideal scenario, Kishore’s total earnings will be ₹3.6 crores in 30 years.

But that is not all. Nothing is ever ideal, is it?

There are factors like potential increase in your income, change in lifestyle due to change income, inflation, return on investing the insurance benefit,

We have to consider these for the Human Life Value to be as precise as possible.

Since a change in lifestyle or added financial commitments cannot be predicted, we should count them in only when necessary and during financial plan reviews.

On the other hand, return on investing the insurance benefit, by the nominee, to offset the inflation can be predicted. Years of track records show low-risk debt fund investments give an average return of 8% per annum in the long term.

With all the data in place, we can calculate the Human Life Value of Kishore as,
Human life value calculationIn the event of the insured’s death, his nominee will receive this optimal life cover. Investing this Human Life Value in a low risk 8% return instrument will fetch his nominee ₹12 Lakhs per annum for 30 years.

It will be a virtual financial replacement for Kishore.

To calculate your optimal Life Cover and Policy Term that fits your Financial Plan, use this “Life Insurance Calculator”.

The building phase of your Life Insurance Profile will be complete with the completion of this step.

But you might still face a practical challenge in finishing up.

“How do I choose the right insurance policy from the list of term plans available in the market?”

“What would define the quality of a good insurance policy?”

If you cannot seem to find answers to these questions, don’t worry. We’ve got your questions answered in this article:

Here’s “A Cheat Sheet to Select the Best Term Insurance Plan for you”.

Selecting the best term insurance plan also means, keeping it in the best shape.

Like your investment portfolio and your financial plan, your insurance plan needs periodic review, too. It will help to keep your insurance plan in good shape, and in turn, your financial plan.

Reviewing Of Your Insurance Cover:

Just as the insurance cover building phase, reviewing it is also quite simple and quick.
Reviewing of Your Insurance CoverCertified Financial Planners recommend investors to review their financial plan at least twice a year. Since it does not take much effort or time, you may review your insurance plans, too.

It is much like checking if you have fastened your seatbelt before driving your car.

However, your insurance cover review is a must if there is a substantial increase in your monthly income, say 25% or more.

A breakthrough in career or promotion could bring such a dramatic increase in income. And often, it also inevitably increases expenses. It has happened to many people, and it may happen to you too.

In such cases, you will need to increase your life cover.

On the other hand, you might choose to change your retirement age in the future. Even though it is very rare, it is a possibility.

In such scenarios, you might want to extend your life cover. Reviewing your insurance plan will show, if it will still be effective for your financial plan.

Conclusion

Building a sound insurance cover is the simplest there is in financial planning.

Yet, many of us mix up insurance and investment—unaware of its harmful effects. If you or someone you know is still unaware—or want to get rid of those financial drains—read “Is Your Insurance Policy Hurting Your Portfolio?”

Regardless, I appreciate you for choosing to build your insurance profile by yourself.

If you find this article helpful, share it on your social media. You might help someone choose the right insurance plan.

If you feel your financial plan deserves a professional touch, feel free to reach out to us by registering below.

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Jey S
Jey S
24. September, 2021.
I have been using Holistic Investment Planners for the last three years. Mr. Srinivasavaradhan answered all my questions and doubts very patiently during the first free consultation. I was able to clearly define my short-, medium- and long-term goals once I signed up for the comprehensive plan and got their investment plan suggestion to achieve my goals. They are very polite and highly professional whenever I contact them for any queries or make investments. They never pressurize you to invest on their recommended financial products. I would have been lost money by investing directly without their help since I do not have time and knowledge about different financial products. Risk planning is also done as part of financial planning. Truly, they are holistic planners when it comes to your financial planning. They help you to define your life goals, understand your financial resources and establish a plan to invest towards reaching those goals. They do review your plan as you progress to make sure that you are on correct path to achieve those goals. Kudos to the team and keep up the good work!!! I am happy that I found holistic investment planners for my financial planning and management.
aksaswadkar
aksaswadkar
24. September, 2021.
I was about to retire and really not understanding how to invest money to have financial freedom and fulfilling my goals. Was desperately searching on internet way out and fortunately came across Holistic Investment Planners. I read number of articles on their website and realized that this is the agency which I want and engaged their services for my retirement planning. It is an excellent experience to be associated with Holistic. Right from day one our interaction was fantastic and they gave me such a wonderful plan that I had never imagined. I am fortunate enough to be in the client list of Holistic. I have recommended Holistic to my friends as well.
Lionel Faber
Lionel Faber
16. September, 2021.
I've been availing their services for the past year. They are highly knowledgeable in the field and are very patient with all doubts and queries. Personalized financial planning is provided keeping your short term, medium term and long term goals in mind. They do not pressurize you to purchase schemes of their choice. They provide their input and suggestions and leave the decision up to you which shows their honesty and high principle.
Sridhar
Sridhar
8. September, 2021.
Financial planning brings peace in life. Holistic Investment have supported in arriving financial plan based on future goals. My investments are regular since then. They are professionals in their business, will recommend others.
Nitesh Agrawal
Nitesh Agrawal
6. September, 2021.
I have been using Holistic Investment Planners from last one year. The journey has been fantastic. Being a finance person myself I always thought we can look after and plan own finances also. However, due to lack of time and deciplain the things are not always as desired. After joining with Holistic Investment for the first time Icame to know the Financial goals and quantified them. Some dreams were unrealistic based on the earnings and savings so had a reality check. Also got the information and deciplain of investing on regular and more rewarding securities. I definetly suggest to use Holistic Investment Planners. They are professionals, available and hear youor full story before presenting plans. They are flexile in the sense if there are some urgent deviations required, they help to plan the same. For all professionals/individuals I would suggest using professional help of Holistic Investment Planners for best results in long term investment and financial goals achivements. Last advise will be to start early in your life. It really pays well to start in the beginning itself else the dreams needs to adjust :)
Swetha Vasanth
Swetha Vasanth
6. September, 2021.
This is my first year service with the Holistic Team and I would say that they are very much helpful in creating a financial plan and follow ups during the year. I would definitely suggest them if anyone who is willing to proceed with their savings professionally.
Joseph Mathias
Joseph Mathias
6. September, 2021.
I came to know about Holistic Investment Planners online while searching for different investment ideas. Once I contacted them the journey was very smooth. Mr. Ramalingam explained all the aspects of Financial planning in detail and it opened my mind. I realized how important it is to have a Financial planning. Mr. Rajan suggested all the requirements as per my goals and made a Investment plan keeping in mind of my goals. I started my Investment journey with them. I wish I had done it some years back then it would have been in a different level. Review meetings were held every six month to check the implementation of the plan and check the results as per the requirements and to check if any changes required. Overall it was a good experience with Holistic Investment team and would like to continue in the years to come.
Srinvas Kannan
Srinvas Kannan
30. July, 2021.
I came across Holistic investment planners almost 5-6 years back, but I did not have the trust since I had met a few of them who did not sound promising. Then I started investing through a financial advisor of my friend. After 4 years of investing the returns were very low. I was disappointed and started looking for financial advisors when I came across Holistic investment. I had a detailed discussion about my goals and the way they would approach achieving my goal before deciding to switch my investments to them. After a thorough analysis of my then existing portfolios, they suggested new ones and we zeroed-in on 6 schemes/funds where our investment would be split. I am glad I made the decision of switching over and taking Holistic planner's advise, my returns are handsome and I only wish I could have taken their help/advise 5 years back itself. Neverthless, I would like to recommend their services for investment and financial advise if someone is serious about their investments.
Shivaram Andiappan Selvaraj
Shivaram Andiappan Selvaraj
3. July, 2021.
I got a free first time consultation. I got my doubts resolved. They also gave additional advises for investment planning which was also useful.
Nellai B
Nellai B
26. June, 2021.
I have been associated with them for the past three years. They are very professional and polite in answering all our questions. I have complete trust in their suggestions. I strongly recommend for anyone. I am looking forward to have strong and successful association with them.
Google rating score: 4.4 of 5,
based on 61 reviews

Google Reviews

Jey S
Jey S
24. September, 2021.
I have been using Holistic Investment Planners for the last three years. Mr. Srinivasavaradhan answered all my questions and doubts very patiently during the first free consultation. I was able to clearly define my short-, medium- and long-term goals once I signed up for the comprehensive plan and got their investment plan suggestion to achieve my goals. They are very polite and highly professional whenever I contact them for any queries or make investments. They never pressurize you to invest on their recommended financial products. I would have been lost money by investing directly without their help since I do not have time and knowledge about different financial products. Risk planning is also done as part of financial planning. Truly, they are holistic planners when it comes to your financial planning. They help you to define your life goals, understand your financial resources and establish a plan to invest towards reaching those goals. They do review your plan as you progress to make sure that you are on correct path to achieve those goals. Kudos to the team and keep up the good work!!! I am happy that I found holistic investment planners for my financial planning and management.
aksaswadkar
aksaswadkar
24. September, 2021.
I was about to retire and really not understanding how to invest money to have financial freedom and fulfilling my goals. Was desperately searching on internet way out and fortunately came across Holistic Investment Planners. I read number of articles on their website and realized that this is the agency which I want and engaged their services for my retirement planning. It is an excellent experience to be associated with Holistic. Right from day one our interaction was fantastic and they gave me such a wonderful plan that I had never imagined. I am fortunate enough to be in the client list of Holistic. I have recommended Holistic to my friends as well.
Lionel Faber
Lionel Faber
16. September, 2021.
I've been availing their services for the past year. They are highly knowledgeable in the field and are very patient with all doubts and queries. Personalized financial planning is provided keeping your short term, medium term and long term goals in mind. They do not pressurize you to purchase schemes of their choice. They provide their input and suggestions and leave the decision up to you which shows their honesty and high principle.
Sridhar
Sridhar
8. September, 2021.
Financial planning brings peace in life. Holistic Investment have supported in arriving financial plan based on future goals. My investments are regular since then. They are professionals in their business, will recommend others.
Nitesh Agrawal
Nitesh Agrawal
6. September, 2021.
I have been using Holistic Investment Planners from last one year. The journey has been fantastic. Being a finance person myself I always thought we can look after and plan own finances also. However, due to lack of time and deciplain the things are not always as desired. After joining with Holistic Investment for the first time Icame to know the Financial goals and quantified them. Some dreams were unrealistic based on the earnings and savings so had a reality check. Also got the information and deciplain of investing on regular and more rewarding securities. I definetly suggest to use Holistic Investment Planners. They are professionals, available and hear youor full story before presenting plans. They are flexile in the sense if there are some urgent deviations required, they help to plan the same. For all professionals/individuals I would suggest using professional help of Holistic Investment Planners for best results in long term investment and financial goals achivements. Last advise will be to start early in your life. It really pays well to start in the beginning itself else the dreams needs to adjust :)
Swetha Vasanth
Swetha Vasanth
6. September, 2021.
This is my first year service with the Holistic Team and I would say that they are very much helpful in creating a financial plan and follow ups during the year. I would definitely suggest them if anyone who is willing to proceed with their savings professionally.
Joseph Mathias
Joseph Mathias
6. September, 2021.
I came to know about Holistic Investment Planners online while searching for different investment ideas. Once I contacted them the journey was very smooth. Mr. Ramalingam explained all the aspects of Financial planning in detail and it opened my mind. I realized how important it is to have a Financial planning. Mr. Rajan suggested all the requirements as per my goals and made a Investment plan keeping in mind of my goals. I started my Investment journey with them. I wish I had done it some years back then it would have been in a different level. Review meetings were held every six month to check the implementation of the plan and check the results as per the requirements and to check if any changes required. Overall it was a good experience with Holistic Investment team and would like to continue in the years to come.
Srinvas Kannan
Srinvas Kannan
30. July, 2021.
I came across Holistic investment planners almost 5-6 years back, but I did not have the trust since I had met a few of them who did not sound promising. Then I started investing through a financial advisor of my friend. After 4 years of investing the returns were very low. I was disappointed and started looking for financial advisors when I came across Holistic investment. I had a detailed discussion about my goals and the way they would approach achieving my goal before deciding to switch my investments to them. After a thorough analysis of my then existing portfolios, they suggested new ones and we zeroed-in on 6 schemes/funds where our investment would be split. I am glad I made the decision of switching over and taking Holistic planner's advise, my returns are handsome and I only wish I could have taken their help/advise 5 years back itself. Neverthless, I would like to recommend their services for investment and financial advise if someone is serious about their investments.
Shivaram Andiappan Selvaraj
Shivaram Andiappan Selvaraj
3. July, 2021.
I got a free first time consultation. I got my doubts resolved. They also gave additional advises for investment planning which was also useful.
Nellai B
Nellai B
26. June, 2021.
I have been associated with them for the past three years. They are very professional and polite in answering all our questions. I have complete trust in their suggestions. I strongly recommend for anyone. I am looking forward to have strong and successful association with them.
Google rating score: 4.4 of 5,
based on 61 reviews

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