I am creating a few hypothetical examples. Hypothetical for you, real for me. These are all friends, classmates, neighbors,….I want a reader feedback about their life insurance needs. I will then react to the feedback.

Story 1: Mr. Rajesh is a well off builder and like a lot of my friends lives in Ghatkopar. I will not be able to estimate his net-worth but it should be greater than Rs. 20 crores, but less than Rs. 30 crores. Most of his assets are in buildings, rented properties, and of course has debt assets and equity shares. His equity portfolio is at the mercy of a few of us 🙂 so he keeps bouncing ideas of some of us. He is 49 years of age, had inherited a part of his assets but has grown it at a good pace and continues to do so. His annual income (attributed to his efforts) should be in the region of Rs. 2 crores and his increase in networth (thanks to his asset allocation) should be in the region of Rs. 1.5 cores apart from appreciation. He is smart enough not to interrupt the compounding and hence the ballooning of the equity portion of the net-worth. He has one son educated and helping him in the business and his wife is a home-maker. Their annual expenses are in the region of Rs. 10,00,000 – but last year he was forced to take a luxury tour of Europe – he spent Rs. 22 lakhs for a trip with his wife.

Story 2: Mr. Paresh is in the Chemicals business, but is bored with the business (says it in every meeting) has a net-worth of about Rs. 10-12 crores. He is 52 years of age and his wife earns very well as a doctor. His daughter is a doctor, married and settled in the US of A. His son did his studies abroad and is a merchant banker in Singapore. The annual expenses (personal) is about Rs. 600,000. Of course when he stops his business, his car, driver, a domestic help..and I think about another Rs. 600,000 per annum will be added to the costs.

Story 3: Mr S V Mani is an accounts manager working in a C A firm and he writes the accounts for a few hi net-worth housing societies. He has an income of Rs. 21,000 p.m. with which he supports his younger brother (employed in a small temple in Thane) and a father who is about 78 years of age. His father’s expenses on medicines is about Rs. 30,000 per annum. His younger brother earns about Rs. 6000 per month as a retainer from the temple.

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  1. You did not mention the 3rd story person age but I assume that it would be around 53 as his father age is 78.I think the First 2 story people did not require the insurance because they did not have any libalities and the corpus that they have is more than enough to sustain if they will no longer there in this world.

    But the person in 3rd story will need atleast 50 lakh (I will increase that valused but i choose this value based on his take home salary) term insurance that will cast him around 7000 Per annum.Because he have 2 person to support.I am sure there are more his wife and children but u forgot to mentioned them.

  2. clearly the first two dont need Life insurance .if you are already worth 10 cr then the addition of a crore or two is not going to make a materially big difference to the quality of life of the dependents -who seem to live rather frugally for wealthy folks.

    the third person does need it.he should consider health insurance as well.

  3. Dear Subra, In my view –

    1. Require health cover & general insurance for his properties/cars etc

    2. Health cover & general insurance for his properties/car etc.

    3. Term cover in the range of 40-50L, Sr. Citizen medical policy for his father, health cover for all other family members including brother(I assume he is married & has wife & kids), Critical illness cover of at least 10L for self as well personal accident cover of at least 15L for self.



  4. Of the three cases, The 3rd person will need life insurance. Assuming his age of around 45 years and a family to support he should ideally have a term plan around 50L (maybe more depending on other information and needs).
    – kapil

  5. Definitely Rajesh and paresh may not need life insurance for family’s financial security but they would definitely be interested in legacy planning through life insurance. They can buy a whole life plan on themselves to leave an estate after them my be 5cr or more as much as they are comfortable with if at all they need legacy planning.
    S.V.Mani needs life insurance definitely as he has 2 dependants at least. Considering the affordability and the willingness to take term insurance i would strongly suggest one. Apart from insurance i would also suggest him for planning for living too long. (his fathers age is 78 so definitely the life expectancy is high) so he also needs to cover the risk of not only dying young but living too long…

  6. Subra,

    I have been a good follower of your website, i invested 2 lakhs in top indian MF companie’s diversified fund. But i was not sure, what is the return if i keep it for next 20 years or so.

    My queries.
    1. I invested when the NIFTY at 5200, so in order to expect returns of 400% in 20 years, will the nifty be at 20,000 or so.
    2. Will the Indian GDP be at 4.5 trillion in 2030 or so? currently it is 1.2 trillion.
    3. Is that possible to get my return 400%, even if the NIFTY stays at 8000-10000.
    4. Do you really think, india is in long term secualar bull story? if so why?

    I apprecaite if you could answer from you thoughts. every where i read, sensex returned 15% returns, from 1980-2010, but will this repeat in next 20 years. ofcourse i am ok even for 10% return after deducting fund charges

  7. I would follow the basic principle of insurance:

    Every person who has an economic value must have an insurance cover. And the higher the value the more the cover you need. So (1) would need more than(2) who in turn would need more than(3). The amounts can be worked out in consultation with above insurees. I would suggest (1) should go in for 20 to 30 times his net worth, while (2) should go in for 20 times and (3) should go in for 10 to 15 times. This is because the net worth of (1) would increase to much more in a given period of time in comparison to (2) and so on to (3).

    This theory of ‘he is well-to-do with no debt so he does not need insurance’ is ridiculous. Does it mean that coverage opted for by Ambanis, Mittals, Mallyas and their ilk is wrong financial planning?

  8. Person 1 – Does need a mixture of Insurance Covers. Yes he may be in a business with a positive long term outlook, but nevertheless he is exposed to a One Business – One Company Risk(Equity allocation not considered). A Big positive is that his son has joined his business. He may in the future take certain risks and maybe suffer losses. His whole networth may be at risk. His Son when he takes over the business may or may not be as good as his father. Therefore uncertainity does exist either directly or indirectly. Plus nearing retirement his Wife does want to enjoy the bigger things in life.And at the age of 49 all his assets are in the High Risk category

    Person 2 – An important point mentioned is that he is bored out of his chemicals business. So there may be 2 scenarios. He may sell of his business and opt for an early retirement or continue in his business but as he is bored he may not drive the business enough to make it big. The proceeds from the sell off may take care of his retirement but if he opts not to sell off he should have certain life covers. His wife is a doctor and assuming she will not take over the business due to lack of capability(she is a doc), she might have to continue her practice long into her life. She cannot retire at the age of 60(if something unfortunate happens) because an uncertaininty may exist- Is this amount of money enough if not then. She may have to depend on her children.

    Person 3 – Father 78, he doesnt need money if something happens to his son. He wants his son to be by his side at this age. He needs more current income and should set aside some for the future. Insurance will depend only after we see his Expense statement

  9. What do you mean who needs life insurance? Everybody who can get life insurance needs it? The answer depends on whether you are working in the life insurance industry have an aggressive target and a s*()ball boss. If you have a boss, all 3 need it. If you are the friend of these 3 people perhaps only Mani needs life insurance.

  10. “Does it mean that coverage opted for by Ambanis, Mittals, Mallyas and their ilk is wrong financial planning”

    i would doubt the ambanis,mittals etc have life insurance.its a waste of their resources.

  11. “i would doubt the ambanis,mittals etc have life insurance.its a waste of their resources.”

    Great! So only those below poverty line need insurance. And so as you climb up the ladder, you must reduce your insurance coverage. Just imagine you are a millionaire travelling by Air India from Dubai to Mangalore on IX 812……..after all what is a couple of crores. The rich drop this amount in a transparent plastic box with a Red Cross marked on it when they go to their clubs….or the dead man’s wife with a 10 crore net worth would blow away 2 crores at a kitty party.

    And dear Vishwanath. You sound like Dhirendra Kumar. Sure insurance is mis-sold. But then what is not? If MFs can only survive if ULIPS are removed from the scene then MFs need insurance.

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