Insurance Value calculation

1 Situation
• Person with age 35yrs has 3 dependents and has annual salary
of Rs12 lakh House hold expenses (annual) Rs 6 lakh. Insured
person expenses Rs1.2lakh. Has plan to retire at 60yrs.
Home loan of Rs 50lakhs and car loan of Rs 7lakh. Big ticket
expenses is expected to be Children’s education Rs20lakh,
Children’s marriage Rs15 lakh. Retirement/Contingency needs of
Spouse over time 10lakh.
Existing assets of Rs23lakh, existing life cover is Rs2lakh.
SL Description Amount
A Person with age
B Dependents
C Annual salary
D House hold expenses
E Insured person expenses
F Has plan to retire at 60yrs
G Corpus Needed to cover regular living
H Home Loan
I Car Loan
J Corpus Needed to pay off Loans
K Children Education
L Children Marriage
M Retirement/Contingency needs of Spouse over time
N Corpus Needed to meet Long Term Goals
O Existing Assets
P Existing life cover
Q Total
Insurance cover needed (
2nd Method
 How to Calculate Life Cover Required for a Term Plan
• Factors required for the calculation :
• A( Current monthly expenses)- This includes the actual expenses excluding investments and savings
• B(Inflation)- This part of the formula represents the inflation. It is important to note the exact percentage of
inflation.
• C1- Current age in years
• C2- This defines the retirement age, the age at which you expect to retire.
• C- This defines the number of years left for entertainment( C2-C1)
• D- This defines the heavy expenses that you might come across in the later stages such as wedding
expenses, higher studies expenses and other expenses. It is advisable to count inflation while calculating this
expense.
• E- E defines the existing savings that you have including the money in your bank account, Fixed Deposit
accounts, Recurring Deposit account, shares and such
• F- F defines the existing liabilities that you might have which includes existing outstanding loans
• G- This stands for existing life insurance cover which includes any continuing life insurance policy. This is
calculated by adding the sum assured of these policies.
• What is not included in the calculation? Fixed Assets and long-term savings such as house, car, land, and
jewellery. Post retirement expenses.
Formula for calculating the life cover:

• Formula= 1+𝑟 𝑛−1

𝐴 ∗ 12 ∗ ∗ (1 + r) + D − E + F − G
𝑟
• If Mr Raj Subin Jose, is looking to buy a insurance
policy for a sum assured for Rs 6lakhs. If the
premium is Rs 30,000/- per annum for a term of
20years. Agent has canvased that from the past
experience the maturity amount has generated a
return of 4%.
• If the proposer has a option to buy a term
insurance for Rs 4500 for the same risk cover.
Guide him using RD (7% annual rate) as how
overall return in can be maximized for Insurance.
 2nd Situation
• For a 35yrs old, who plans to retire at 60yrs, has an annual
salary of Rs9.6 lakh and monthly expenses of Rs30,000/-. He
has Mutual funds, EPF etc worth Rs20 lakh and vehicle loan,
home loan etc of Rs40 lakhs. There is a expectation of children
education to be of Rs30lakhs. Inflation is expected to be 7%.

2.3+.20+.30=2.9
 3rd
• Mr Patil aged 33yrs stays in Blore, has annual salary of Rs 12 lakh.
Dependents, Father (61) Mother (53), Wife (31).
• Living expenses Rs 4.8 lakhs / year
• His expenses Rs 96000/-
• Outstanding loan is nil, Future kids expenses Rs35lakh, Contingency
corpus for Wife 10lakh.
• Existing investment Rs 25lakhs
• Existing Insurance cover is Rs 1 Crore.

Calculate
1) Corpus required for 25 years (4.8cr - 0.96lakh)*25 = Rs 96lakh
2) Corpus required to meet future expenses (0.35 cr + 0.10cr) = Rs 45lakh
3) Total Required cover. (.96cr + 0.45cr - 0.25cr) = Rs 116lakh
4) Deficit amount need cover for. (1.16 cr – 1.00 cr) = Rs 16lakh
 4th
• Mr Sahil aged 41yrs stays in Blore, has annual salary of Rs 40 lakh.
Dependents, Mother (74), Wife (31), Children 17 and 7 years)
• Living expenses Rs 14.4 lakhs / year
• His expenses Rs 288000/-
• Outstanding loan is 1.1 lakh, Future kids expenses Rs1.25 Crore,
Contingency corpus for Wife 1crore.
• Existing investment Rs 30lakhs
• Existing Insurance cover is Rs 2 Crore.

Calculate
1) Corpus required for 25 years (14.4cr – 2.88cr)*18 = Rs 2.07cr
2) Corpus required to meet future expenses (0.011cr + 1.25cr+1cr) = Rs 2.26crore
3) Total Required cover. (2.26cr +2.07cr– 0.30cr) = Rs 4.03cr
4) Deficit amount need cover for. (4.03 cr – 2.00 cr) = Rs 2.03lakh
 2nd .1 Situation
• For a 25yrs old, who plans to retire at 60yrs, has an annual
salary of Rs5 lakh and monthly expenses of Rs20,000/-. He has
Mutual funds, EPF etc worth Rs5 lakh and vehicle loan, home
loan etc, of Rs 40 lakhs. There is a expectation of children
education to be of Rs 30lakhs. Inflation is expected to be 7%.

NOPP
 Calculate from the below table premium for 25 years
plan. Age of proposer is 25 years. Per Rs 1000/-
Policy Term (in years) Endowment Policy Term (in years) ULIPS
Age (in AGE/
15 25 35 15 25 35
years) TERM
20 79.05 44.30 29.95 20 71.20 40.10 28.10
30 82.45 46.75 32.30 30 71.50 40.75 29.40
40 88.20 51.40 37.10 40 72.85 43.25 33.15
50 97.70 59.65 50 77.10 49.40

Age Term of the Policy (years) Term Age Term of the Policy (years) Single Premium
(yrs.) 5 10 15 20 25 (yrs.) 5 10 15 20 25
20 1.97 1.97 1.97 1.97 2.05 20 8.12 13.71 18.12 22.03 25.86
25 2.07 2.07 2.08 2.18 2.35 25 8.55 14.33 19.46 24.49 29.70
30 2.13 2.19 2.36 2.57 2.92 30 8.81 15.54 22.14 28.99 37.04
35 2.43 2.64 2.94 3.40 3.97 35 10.07 18.73 27.72 38.31 50.31
40 3.04 3.43 4.07 4.81 5.70 40 12.62 24.45 38.38 54.18 71.81
 Comparison
• Mr Insu is looking for insurance of Sum assured Rs 50lakh for . His age is 25 years and has
annual salary for Rs 5 lakhs. He approaches you for suggestion. From the below mentioned
table suggest which of these options do u suggest and why?.

• Term Plan
Rs 4500 per year
Endowment Plan
2,21,500/per year
Maturity amount is 110% of
the total premium paid and
Maturity Bonus of 5% in last 5
years

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Why one should read insurance Document?

• General Understanding
• Presence of mind
Calculate the SI for age 19 if premium
is Rs 20,000 and 45,000 and 1,10,000