What type of insurance should we take? See there are two types of insurance The first is your plain vanilla insurance which we call term insurance The second one is your endowment policies Which we call whole life insurance The whole life insurance and endowment policies Includes insurance plus investment This means there is the death benefit also and investment also This means your money gets multiplied. You will get more money after 20 years or 25 years But my preferred mode is term insurance Because you shouldn’t mix insurance and investment

When you are taking insurance then take the plain vanilla insurance And invest the remaining money elsewhere. You can invest in FD You can invest in PF and mutual funds also. And I am saying this because Insurance as an investment doesn’t perform well I have seen the returns of the last 15 years, 20 years, 25 years You don’t get the annual returns of 5 to 6 % In fact, I have made a article on that You can watch that article And I have also made a article on term insurance You can watch both the articles

You will find the links in the description. So it depends on you what type of investment you wanna take? Take whatever investment from the two But you have to take an insurance cover What is the total coverage that you want for your family? We will talk about that. As I have told you earlier The first method is that in which you calculate all your expenses for the next 15 years, 20 years, 25 years For whatever time you take insurance. We will take an example in this. We are calculating Insurance cover. Let’s say the age is 40 of whom we are calculating insurance cover And let’s say his annual income is 10 lakh per annum

So according to that We want to see how much insurance cover he should take If there is a person of age 40 years and his family members are dependent on him He is the only earning member in the family So what we have to do is, calculate your expenses What are expenses? Monthly expenses, rent How much money is spent on groceries? How much is the bill for your electricity? How much are the fees of the children’s school? How much is spent on transportation? When you go out for lunch or something then how much is spent on it? And the other miscellaneous items you wanna consider Make an excel sheet of what is your total expenses

So I have estimated that your expense is 30,000 Rs per month We are talking about the age of 40 years What will be your annual? This is 3.6 lakhs per year So it is 3.6 lakh per on today’s date And we are considering whoever is taking the insurance Wants to take the insurance for his retirement. This means his age will be 60 years So in the coming 20 years, his expenses will increase So I have considered a 6% inflation rate So how will he have to spend it after 20 years? So his expense will be 11.5 lakh per annum So we know about the starting, we know about today’s date We know about the expenses of 20 years later, how much will be expenses per year

So we will calculate an average yearly expenditure I have calculated the average yearly expenditure. That is 7.3 lakhs per year So what will be the expense of a total of 20 years? I have done 7.3× 20 Your family needs 1 crore 46 lakhs Rs So if by any chance a mishappening happens with you If your family needs support then all these expenses should be covered for the next 20 years The next is your liabilities and the assets This can also happen that you have bought a car or a house And there are some EMI payments So you have to add them also. Let’s say your EMI is 30000 per month

I have taken total EMI here of car, house whatever your total EMI is Add them here. And let’s say the EMI will go on for 10 years So 30000 × 12× 10. You will need 36 lakhs Rs in total in the next 10 years They will become your liabilities You may have some assets too Now this person is 40 years old He may have done some investments Maybe he has some FDs, provident funds, mutual funds, stocks, real estate, gold All the investments in total Let’s say he has 15 lakhs worth of assets. So you will do liabilities – assets He has 36 lakh of liabilities minus 15 lakh of assets

We will get liabilities of 21 lakhs here Now this is also possible, it can be vice versa also What assets are more than the liabilities So in that case, you will take the negative value And you will subtract that negative value from here Now our liabilities is greater, which means We have to add that money to this

To get what total coverage we are trying to get Now this was about liabilities and assets Then there are your remaining financial goals. Maybe you have 1 or 2 children And you are expecting the expenses of their education. We have considered only one child You can do the calculation according to yourself. So you need 20 lakhs Rs let’s say for kid’s education

In the next 5 or 10 years Whatever you think is the fair amount, the amount that will be spent on college You have already considered school fees here. But you will consider a college education here. I have considered 20 lakhs You can consider any amount that you want. Whatever amount you’ll need for marriage I have considered 20 lakhs for that also. So this amount will be 40 lakhs What are our total requirements for the 20 years? This is 40 lakhs, 21 lakhs here, and here is 1 crore 46 lakhs. You’ll add all three The requirement will be 2 crores 7 lakhs after adding them This is the requirement of total coverage. You can calculate this much insurance coverage. So you can also calculate in this way. Now we will go to the thumb rule method The second method is the thumb rule method. In this, you’ll get a multiplier according to the age

In which you have to multiply it by annual income. For example, if you come in the age bracket of 20 to 40 Then you should take 15 to 20 times annual income insurance cover The people who are 40 to 50 years old should take 10 to 15 times their annual income cover The people who come under 50 to 60 age group They can take 5 to 10 times of annual income cover See, the logic here is quite simple. Whatever your annual income is it gets replaced for the next 15 to 20 years If there is any mishappening Then the income that goes for the next 15 to 20 years to your family They would get this benefit. That’s why these thumb rules are kept. If someone

Is in the age group of 40 to 50 then at least he would get his benefit full the retirement These thumb rules are kept according to that Let’s get back to our old example If someone is in the age bracket of 40 then he should take 15 to 20 times of annual income cover. If his income is 10 lakhs per annum Then what will be his cover? It is 1.5 to 2 crores We gave calculated according to the expenses in our old example Then according to that, it was 2.07 crores So now, You can also calculate it by yourself You can calculate it by both methods or you can go the higher side.

It depends on you how much insurance cover you wanna take So we talked about both the methods that how to calculate insurance cover I will give you two tips here. See consider you are 20 to 25 years old And you are taking your insurance And maybe you haven’t planned many of your financial goals And maybe you are not married yet. And maybe you don’t have children then you should take insurance cover according to that. But you should review your insurance cover every 5 years And the second thing the sooner you take the insurance cover Then your premium will be low. Then I would recommend that take the insurance as soon as possible And you should review it every 5 year