Life Insurance has always been a rather neglected area in the mindset of the public. Historically consumers have bought life insurance for reasons of tax saving rather than the core need of providing for one's family in case of death of bread-winner. Secondly, the Indian consumers have been unaware that the insurance need changes with every change in life stage (e.g., if one gets married or has children one's need for insurance goes up). As a result only 8% of India's population is insured and the average insurance size is around Rs. 80,000. This implies that people who think they are insured are also heavily under-insured. One of the most significant reasons for this is the inability of the advisor / agent to educate the customer about the true nature of life insurance. They have tried to highlight the product rather than the need. The need for risk coverage / the need to provide for an untimely death is more difficult to explain and hence has been till lately ignored. Aggravating the situation was the fact that term insurance was expensive until recently.
Suppose ,
Please note that however we have not taken into account the future income growth of the person. This is, therefore, not an exact way of calculating the Human Life Value. This is only a representation to give the customer a fair idea of how this works. Normally, when the Human Life Value concept is used, the amount arrived at is much more than what the prospect would have normally thought of. The Advisor, therefore, must necessarily suggest a package, which covers this amount at an affordable premium. For example, if we calculate the premium amount for Rs. 16 lakhs pure term cover for a 32-year-old man, the amount will be roughly around Rs. 6,000 pa for a term of 20 years. This works out to just 5% of his annual salary (annual salary equal to Rs. 1,20,000). Thus, dying too soon or rather planning for uncertainty of life is the most important need that life insurance fulfils. However, there are other objectives that one could have in mind, which can be achieved through life insurance. The important ones being :
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Human Life Value Calculations
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