Question

You are a 35-year-old married individual with 2 children (ages 7 and 9). You are the primary source of family income with an annual income of $80,000. You are considering buying life insurance policy(s) to make sure, in case of your premature death, that your spouse has money to survive without you and they are able provide your children with college tuition needs. You would also like this policy to provide some form of savings/investment accumulation so that at some point in the future if the needs noted above are no longer required you would have some cash value to consider. Using the Human Life Value system, suggest how much life insurance you should consider, and which life insurance policy product(s) would be appropriate.

Answer 1

There is no right/wrong answer for this question because no other information like monthly expenses, assets, liabilities, education and marriage costs is given. I am assuming all these costs ( in dollars) and thus calculating Human Life Insurance Need.

HLV Basis
Gross Income	$                    80,000
(-) Personal Expense	$                    40,000
(-) Life Insurance Premium	$                             -
Net Income	$              40,000.00
Discount Rate r	2.00%
Time Remaining till Retirement	25
PV	$          7,80,938.26
Need Analysis Basis	Income Method
	$          7,80,938.26
(+) Outstanding liabilitites	$                1,50,000
(-) Liquid assets	$                1,00,000
(-) Existing Sum Assured	$                             -
Insurance Need	$                8,30,938

CALCULATION OF TERM INSURANCE PREMIUM
To cover the Insurance Need of Rs 7,30,938 , we suggest a Term Plan Insurance or ULIP whose premium is Rs. 1000 per month, per crore.
Proportionate Term Plan premium per month	₹ 83.09
Proportionate Term Plan premium per year	₹ 997.13
I need to pay the insurance premium amount of Rs 997.13 per year

SUGGESTED PRODUCTS TO COVER INSURANCE NEED

Some of the suggested term insurance products to ensure safety for loans and liabilities, cover critical illness, tax benefits, add-on protection to family in an event of sudden demise are:

Term Insurance: They are cheaper and the policy coverage exists for certain years. Whole Life Insurance: Permanent life insurance policy, it does not expire and are expensive. Other products include Endowment Plan, Annuity Plan, Pure Term Plan, Group Life Insurance etc. Our recommendation is TERM LIFE INSURANCE POLICIES or Unit Linked Insurance Plan as they are affordable and provide straight forward protection. Examples: ICICI Prudential and Max Life Term Insurance Plan with almost 98-99% claim settlement ratio and an affordable monthly premium.

Unit Linked Insurance Plan is a popular product provided by the insurance companies to its investors which provides insurance as well as investment opportunity. (ULIPs)

Assumptions:

1. Assuming the annual income is the net income after deducting all the taxes

2. Personal Expenses are 50% of the total net income

3. Assuming I am not paying any Life Insurance Premium annually

4. Assuming Inflation Rate 2% to be in US

5. Assuming my retirment age to be 60 years

6. Assuming my oustanding liabilities to be $1,50,000

7. Assuming my liquid assets to be $1,00,000