One of the many dangers of having no or less-than-adequate life insurance is that, in your absence, your family members and dependants could struggle to meet current expenses and future needs. Therefore, it is necessary to find out the right life insurance amount so that your family continues to lead a normal life even when you are not there.

Why you need to find out your “Human Life Value”? Your family is dependent on your earnings to take care of their daily expenses and to accomplish their future goals, such as buying a house, children’s higher education, wedding and spouse’s welfare after retirement. If you take the present or today’s value of all the future earnings throughout your work life which you would contribute to your family, it would give you an amount that could take care of your family in your absence. This is your Human Life Value. This is the basic life insurance your family needs to maintain their current lifestyle and fulfil all their life goals in your absence. A quick way to get a ballpark estimate of the amount is to take your annual expense amount and multiply it with number of years left of your work life. For instance, if your annual expense is Rs 5 lakhs and the number of years of work life remaining is 20 years, you would need Rs. 1 crore as base insurance cover amount.

Consider number of dependants: The more dependants you have, say, spouse, children, parents, siblings and in-laws, higher the life insurance you would need to make provision for their sustenance. For your spouse, you would have to make a provision till the end of your work life as well as for the duration of retired life. As a rule of thumb, this provision can be 10 times your annual expense. For those who are completely dependent and partially-dependent on your income, make this provision at 5 times and 2.5 times your annual expenses, respectively.

Figure out the amount needed to meet future goals of life: There are many life goals, such as children’s higher education and wedding, for which you need to invest regularly. Though the basic cover amount would help your family meet regular expenses of all the dependants, including your children till the time they get independent, it is necessary to make provisions for expenses like children’s higher education and wedding in your life insurance cover as these expenses are usually borne by parents.

Factor in all your obligations: When you start acquiring various assets, you also take up loans, such as home, auto and personal loans. In your absence, it would be difficult for your family to clear these obligations and they might even have to dip into their existing savings. If you add the outstanding loan amounts to your desired insurance cover amount, it would become sufficient to protect your family from all financial obligations.

Periodically review life insurance coverage: While the approach we have just described helps you arrive at the right life insurance amount you need, this requirement keeps changing over time. This means you need to periodically review the adequacy of the life insurance coverage. Based on the growth of your income, lifestyle changes, assets accumulated, and life’s milestones like parenthood, your insurance coverage requirement can increase or decrease. When you have less assets i.e. investments that can create income in the future, you need more life insurance. Similarly, as the number of dependants or your income increases, you need a larger insurance cover. Flexible term life insurance plans are available, which provide high life covers at affordable premiums and allow you to increase your life cover after milestones like birth of a child, and decrease it after accumulation of ample assets or fulfilment of major responsibilities like child’s higher education.

To conclude, arriving at the life insurance amount requires you to take into account a host of financial factors related to your present and future. What’s more, it calls for periodic reviews on the adequacy of the amount. That’s a small task for providing financial protection to your family.

To know more, you can visit your nearest HDFC Bank branch.

According to the National Health Profile 2015, less than 20% of the population in India is covered under health insurance. As a result, the out-of-pocket expenses for an average Indian is high; in urban areas around 75% of out-of-pocket expenditure is on medicine. These statistics, especially in tod