Do you need a Life Insurance?

There is a misconception thateverybody needs life insurance.

If you have dependants, youdefinitely need life insurance.

However, follow this four-steptest to guage whether or notyou need life insurance!

Step 1:If you have no dependants and do not plan

to have in the foreseeable future, you do not need life insurance

Step 2:If you are working and your spouse does not work, she does not need life insurance. The premiums that you will pay for her life insurance, is better invested in products that give much better returns

Step 3:If you have children, you do need to buy risk cover on the life of the child. You should buy adequate risk cover for your own life and invest systematically in child plan mutual fund or even in a diversified equity fund, to secure the future of your child.

Step 4:If you are debt free and you have assets that generate enough income to meet all the financial needs of your family, then you do not need life insurance. We have to be careful here, of the definition of assets.If you own a house and are occupying it, it is not asset for this purpose, since you are not generating any income for your family.

Let us illustrate with an example. Let us assume your annual income is Rs 10 lakhs and you have assets of Rs 1.5 crores. Assuming a post tax annual return of 8%, the income from your asset will be sufficient to meet your needs even after factoring 5-6% inflation. In that case, you do not need insurance. You are better off growing your assets by investing in products that give better returns.

However, if Step 1,2,3 & 4 don’t apply to you and if your family depends on your income or if you are carrying debt, then you will need life insurance.

Now that you know whether you need insurance or not, and most probably you do, its time to make your choice.