How Much Do You Need To Spend On Your Life Insurance
Consequently, the amount of money that is required to maintain a standard of living will be completely based on projected monthly expenses indexed for inflation. A person would atleast need this amount towards his monthly expenses.
"Needless to say, the key to any financial planning is to start early as the contributions required are lower and the power of compounding ensures large savings," advises Kapur.
Human Life Value
Another method through which you can get an adequate life cover is through Human Life Value (HLV) method. In this, the amount of insurance one buys will directly depend on his/her economic value. However, this varies from one person to another. Human Life Value is the capitalized value of the individual’s net earnings for the rest of his working span.
The aim of this approach is to estimate the future earnings of an individual and capitalize them with an appropriate discounting factor (a reasonable rate of interest) keeping in view the present inflation and bank rate. According to Kapur "This present value of the total future earnings is thus the total economic surplus available to the dependent family (as an economic unit). The surplus amount, however, does not include the individual's self maintenance charges, statutory or legal taxes, and also the existing life insurance premium."
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