Hi everyone, this is Prashanth here. In today’s podcast, I’m going to be talking to you about something very important that most of us do not pay enough attention to. Let me ask you a simple question. Do you know what the value of your life is?
In simple terms, you must ensure that, in your absence, your dependents have the necessary financial support to maintain their expenses and meet their future financial goals. And this is what is known as your Human Life Value.
So, the next obvious question is, how do we calculate this?
Well, there are 2 main approaches. You could follow a simple income method, this is where you take your annual income and multiply it by 10. This is a good place to start, but it might not always give you an accurate value. There are two reasons why. Your earning potential could be much larger in the future or there might be other commitments that might come up down the line. This is where a comprehensive review of your income, current expenses, and financial goals need to be taken into account.
Now let me tell you about why this is important.
Let’s take the case of Srinath, who is 39, has a wife and 2 kids. He works as a Marketing consultant in an MNC firm, earning 25 Lakhs a year. His wife Sudha works as a teacher in a CBSE school, earning about 4 Lakhs per annum. The family’s annual expenses are to the tune of around 10 lakhs. Together, Srinath and Sudha have saved up 30 lakhs in a mix of fixed deposits and mutual funds. He passes away in a tragic accident. What do you think happened to his family? And how will their finances be taken care of?
After his passing, the family’s financial security is in question. Sudha’s income is not enough to meet their day to day expenses, let alone their children’s higher education or wedding expenses. Srinath had very little life insurance of 10 Lakhs in a few traditional money-back policies. And the family’s savings weren’t sufficient to provide for future goals. Could Srinath have created a reserve of funds to support them for the 30 – 40 years?
This is where Term Life insurance comes in. It is a tool that helps cover against such unforeseen risks and ensure that your finances are protected at all times.
Imagine that Srinath here had a Term Life Insurance for Rs. 4 Crores instead of those traditional money-back policies. Upon his passing, his family would have received 4 Crores! With the help of some planning, these funds could have easily been split to create a reserve for the family’s regular expenses and for their future financial goals.
By paying a small premium of about Rs. 5,000 per month, Srinath could’ve comfortably covered his life value and secured his family’s finances.
So, when we really do the math, we understand that the value of our lives amounts to a few crores and not a few lakhs. For the sake of our loved ones, we need to make sure that we are adequately insured. Most of us only have a few traditional life insurance policies offering a few lakhs of life insurance. Clearly, this is insufficient. Moreover, they are way more expensive than taking a simple term insurance plan.
Srinath’s story may seem like a one-off situation. But we all know that death is unpredictable and that we would never want our families to go through what Srinath’s family experienced. And now we know that the solution is straightforward.
I hope you enjoyed this podcast and got some insights on why insurance is important. If you need any help on how to calculate your human life value or which Insurance policy to take, feel free to reach out to us and we will be glad to help you out.