Calculating life insurance coverage

The fundamental concept in assessing whether you have adequate life coverage is to check that, should something unfortunate happen to the bread winner, your family continues to ideally get the current annual income. To get this amount right, you would therefore need to calculate the insurance payout that is required to get you current annual income when invested in relatively safe instruments.

An easy way to calculate this amount is to take the bread winner's current annual income, divide this number by current 1 year bank fixed deposit rate and multiply the result by 100. For example:

1. If current annual income is Rs 3,00,000
2. Current 1 year bank fixed deposit rate = 8%
3. The amount of life cover you may want the bread winner to seek = (300000/8)*100 = Rs 37,50,000
4. Amount could be lower if you feel that actual living expenses (after paying off all debts) are lower than Rs 3,00,000 - in which case, substitute that number for Rs 3,00,000 is the above calculation.

Is your family adequately insured ?