Weekly Blog #32.
Over the years, I’ve seen one pattern – families often realise too late that their ‘insurance’ wasn’t enough.
Insurance is not about returns – it is about income replacement.
Take the case of Ashok, 35, the sole earning member of a family of six – wife, two young children, and retired parents. His monthly household expense is ₹40,000, and the family owns their home, with no significant long-term savings to fall back on.
A simple framework, I often used with my team was:
Life Cover = Monthly Expenses × 150
So, ₹40,000×150 = ₹60 lakhs.
Why 150? Because earlier, bank FDs offered around 8% interest. ₹60;lakhs at 8% generates ₹4.8 lakhs annually, or ₹40,000 per month – effectively replacing the family’s income.
Today, with interest rates closer to 7%, the required life cover needs to be higher to generate the same monthly support. We can calculate it as follows :
(100÷7) × 4,80,000 = ₹68.57 lacs.
Yet, many families remain significantly underinsured. One reason is the popularity of insurance products that combine protection with investment. These often offer relatively low life cover compared to the premium paid, as a portion goes towards savings or returns.
For example, a policy with ₹2 lakh cover may translate into barely ₹1,000 per month for the family – clearly inadequate if the policyholder dies.
The key takeaway is simple :
Buy insurance protection, not for returns.
Opt for pure term insurance with adequate cover. For investments, there are multiple options – FDs, mutual funds, equity, gold or property.
Keeping insurance and investment separate is a simple and effective way to ensure your family’s financial security when it matters most.
In the end, insurance is not about returns – it’s about replacing you. Ensure you insure adequately.
Disclaimer: The information provided in the blog is for educational and informational purposes only and should not be construed as financial advice. Readers are encouraged to consult a qualified financial advisor before making any financial decisions. All views expressed are personal.
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