Most persons are over-insured simply because they are force-sold insurance premiums by sweet-talking agents. Basically, you just need two types of insurance - one is a death cover (again only if you have a dependent family - dependent wife, children or dependent parents) and the other is insurance for hospitalization. All other insurances are bakwaas.
The amount of death cover must be sufficient enough to not only cover your mortgage-foreclosures, but also provide a steady income for your dependents till they need. To give a simply example, let us say that you live with your family and you are the main breadwinner. Your wife is a teacher and earns about Rs. 5,000 pm, while your father is retired and earns Rs. 10,000 pm as pension. Let us say your household expenses as of today (including the expenses for dependent parents) is Rs. 30000. You have a mortgage of Rs. 30 L and you pay a monthly EMI of Rs. 20,000. So your death cover must be able to provide your family with either Rs. 50,000 pm for the rest of their lives (plus, adjust for inflation) or Rs. 30,000 pm with a foreclosure of mortgage. So your death cover should be more than Rs. 60 L, assuming that immediately after your death, your family forecloses your mortgage and thus they get Rs. 30 L. Assuming 12% interest (1% pm), your family will earn Rs. 30,000 pm for the rest of their lives. You must recalculate the amount for different scenarios (example, lower interest rate or higher inflation) and deduce the best cover
Re: Reality
by P Unnikrishnan on Jun 13, 2012 11:30 AM
You overlooked Retirement plans, children's education & marriage, etc. Planning for these are very important also. For a rich person this may not be important, but for man with average income, there is no bigger security than insurance.
