Purchase a life insurance policy with a death benefit equal to 10 times your annual income.
The insurance company pays the nominees or the family members of the insured a percentage or a cut from the sum assured each month for a particular number of years.
How To Calculate Income Replacement
- If you are 40 years of age and your annual income is 10 lakhs.- The retirement age is 60 so the cover that will be required is (60-40) * 10 = 2 Crs
Here the individual calculates all the expenses and from this number the value of existing investments is subtracted to arrive at the required life cover.
Human Life Value
Human Life Value helps in determining your life insurance needs on the basis of your income, expenses, savings and liabilities.
Steps To Calculate Human Life Value
- Calculate your current Annual income- Subtract your expenses- Calculate the number of earning years remaining before your retirement- Adjust for the inflation rate- Determine the current value of the future income stream by adjusting for inflation.