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Life insurance (or commonly life assurance, especially in the Commonwealth) is a contract
between an insured (insurance policy holder) and an insurer or assurer, where the insurer
promises to pay a designated beneficiary a sum of money (the "benefits") in exchange for a
premium, upon the death of the insured person. Depending on the contract, other events such
as terminal illness or critical illness may also trigger payment. The policy holder typically
pays a premium, either regularly or as a lump sum. Other expenses (such as funeral expenses)
are also sometimes included in the benefits
Insurance need differs through the various life stages of once life. I will be analysing the
insurance need of mine in three phases which are:-
A) Young Professional
Annual Income: 7 lacs
Family Cover Required for Expenses: 60% of Annual.
For this young professional stage which is for 10 years, the NPV factor is 8.8 as per the
table A mentioned in the Appendix.
Interest in Retirement Contribution: 6% annually.
Young Professionals (25-35 years)
INCOME
Annual Income
Percentage of annual income family will need
7,00,000.00
0.60
4,20,000.00
5,00,000.00
80,000.00
8.80
7,04,000.00
EXPENSES
Annual expenses
Medical Expenses Annual
Emergency Fund
4,00,000.00
50,000.00
1,00,000.00
36,000.00
12,90,000.00
ASSETS
Savings( Fixed Deposits, Cash in Bank)
Present amount of Life Insurance
Total income producing assets
1,00,000.00
2,00,000.00
3,00,000.00
9,90,000.00
B) Post Marriage
The Post Marriage stage ranges from 36 to 60 years of my life.
The Annual Income for this stage is calculated by taking the previous stage annual
income and assuming that there is an increment in the income by 6 % YOY basis for the 10
years.
Average cost of education is assumed to be Rs 70 k per annum for single child and the
Present value is calculated using the factor from the table B in the Appendix.
The Expense on marriage of children is assumed to be around 15 lac per child and its
present value is calculated by discounted it with factor mentioned in the table A.
Currently the Home Loan amounting to around Rs 15 lacs is availed in order to own a
real estate asset.
A car is purchased for which a loan facility of Rs 5 lacs is availed.
Post Marriage(36-60 Years)
INCOME
Annual Income (@ 6 % CAGR)
12,50,000.00
7,50,000.00
9,00,000.00
1,50,000.00
18.10
0.60
27,15,000.00
7,00,000.00
11,48,000.00
12,30,000.00
15,00,000.00
5,00,000.00
2,00,000.00
2,00,000.00
36,000.00
82,29,000.00
ASSETS
Savings( Fixed Deposits, Cash in Bank)
2,00,000.00
25,00,000.00
4,91,000.00
3,00,000.00
34,91,000.00
47,38,000.00
C) Post Retirement
Annual pension: Rs 7 lacs per annum
The Medical Expenses and emergency fund is assumed to be higher than the other two
stages.
No requirement of Life insurance in this phase of life as most of the need is taken care of
in the previous two stages of life.
Post Retirement (60-80 Years)
INCOME
Annual Pension
7,00,000.00
4,20,000.00
6,00,000.00
1,80,000.00
15.40
0.60
27,72,000.00
6,00,000.00
3,00,000.00
6,00,000.00
42,72,000.00
ASSETS
Cumulative Savings (42000 per year for 35 years @ 6 %)
42,75,000.00
42,75,000.00
-3,000.00
Appendix
These tables help to determine Net Present Value (NPV), the amount of capital required
today to satisfy future income or college costs needs, given an assumed investment return of
6 %, inflation of 3% for living costs and 5% for college costs.
Years Income Needed
10
15
20
25
30
35
40
Years Before College
5
10
15
20
Factor
8.8
12.4
15.4
18.1
20.4
22.4
24.1
Factor
0.95
0.91
0.86
0.82