Insurance Need Analysis
Insurance Need Analysis
Submitted by:
Himanshu Jawa 245/2016
Introduction
Human needs are plenty like education, marriage, retirement etc. And simultaneously human life is full of uncertainties of something happening either good or bad. If it is good then great but if it is the other way then one needs insurance to support one’s dependants and to ensure that their family needs are covered in one’s absence.
In India insurance sector is still in its early stage. Only 17.22% of Indian population is covered under insurance. The reasons attributed can be the myth of individuals towards the life insurance or less awareness among the people.
In order to decide that minimum how much insurance one needs, there is simple process of need analysis. It has various methods such as Income Replacement Value (IRV), Human Life Value (HLV) and Need Assessment Method.
Also, one can make analyze one’s need of insurance on the basis of Stage of Life and using the Need Analysis Worksheet.
Insurance Calculation
There are 3 ways to calculate insurance i.e. IRV, HLV and Need Assessment as mentioned above.
I am selecting IRV and Need Assessment Method to calculate my insurance needs.
IRV: Because I know what my annual income will be from 4 months from now and my retirement age from then.
HLV: Because I am not sure of my taxes and life insurance premium and other charges.
Need Assessment: Because I know my needs, asset investment and income.
Also we can make use of Need Analysis Worksheet for the purpose stated above.
Income Replacement Value
This is one of the basic methods of insurance calculation and is based on a person’s current income.
- Insurance Needs = annual income * number of years left for retirement.
Or
- Insurance Needs = annual income * Income Replacement Multiplier
Assumptions
- Annual income assumed here is after pre-tax.
- Retirement age is 60 years.
- Income Replacement Multiplier is average of 5 and 10 as advised for individuals of age group of 20 – 30 years.
Now considering the option (a) for myself,
Insurance needs = 7,20,000 * 35 = Rs. 2,52,00,000
Considering option (b),
Insurance needs = 7,20,000 * 7.5 = Rs. 54,00,000
Need Assessment
In this method, one assesses his/her needs, needs of loved ones and finally makes a calculated assessment.
Self assessment:
- Lump sum needs
- Education Loan
- Monthly income needs
- Monthly expenses
- House Rent
- Monthly income needs of dependants
Need Analysis Worksheet
| A | B | C | D | E | Points | |
1 | Your Marital status | Never Married | Married Separated | Divorced | Widowed |
| 0 |
2 | Number of dependants (children, elderly parents, or other dependant relatives | None | 1 or 2 (atleast one | 1 or 2 (both overage 7) | 3 or more (atleast one underage 7) | 3 or more (all overage 7) | 0 |
3 | Will you fund a child's college education? | No | Yes : 1 child | Yes : 2 children | Yes : 3 or more children |
| 0 |
4 | Do you own a home or plan to buy one? | No | Yes, paid in full | Yes, owe less than and Rs 8 lakhs | Yes, owe between 4-8 lakhs | Yes, owe between 4-16 lakhs | 0 |
5 | Do you have any other debts (car loans, educational loans, credit card payments? | No | Yes, but less than 2 lakhs | Yes, between 2-4 lakhs | Yes, over 4 lakhs |
| 3 |
| Total Score |
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| 3 |