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Learning the basics

Insurance is as important for women as it is for men. Women should definitely buy life insurance the day they start earning and should revaluate the cover whenever they get a substantial raise.

     Print Edition: November 27, 2008

CALCULATE YOUR NET WORTH
Your net worth is the minimum cover you need
Total assets (equity, cash, deposits, etc.)25 lakh--
Total liabilities (outstanding loans, bills, etc.)
30 lakh--
Your net worth-5 lakh--

Life insurance is needed to deal with the uncertainty of death. It helps ensure that in case of an untoward event, the dependants of the insured person don’t face any financial difficulty. But most of the policies issued presently cover only the lives of men. Most people, including working women and homemakers, do not think it is necessary to insure women. This is a common financial mistake.

The amount of life insurance needed is based on the ‘human life value’ or the income replacement that is required. The human life value concept, developed in 1924 by Solomon S. Huebner of the Wharton School of Business, calculates the amount of insurance you need based on the financial loss that your family would incur if you were to die. Experts suggest that your life insurance cover should be at least six to 10 times your annual income. Another popular way of calculating the insurance needed is based on an individual’s net worth. This is the difference between one’s assets and liabilities (see table).

Women should definitely buy life insurance the day they start earning and should revaluate the cover whenever they get a substantial raise. The next stage at which women need to think about insurance is when they get married. One should evaluate the combined risk exposure of the couple and balance the insurance need accordingly. Similarly, the birth of a child, an additional dependant, should be taken as an opportunity to relook your insurance needs.

Another point at which a woman should consider raising insurance appropriately is when she is a co-applicant for a loan. Finally, separations and divorces require re-look at the insurance needs.

Having understood the need for life insurance, take an objective look at what you are worth and about how much your family would need to maintain its lifestyle without your earnings. If disaster strikes, your nominees will be grateful for your foresight. It’s reason enough to buy a policy today.

• Women should take insurance when they start working. You should review cover on getting a high raise.
• When you marry, evaluate the combined risk for you and your husband. Review cover when you start a family.
• Raise the cover if you apply for a loan jointly with your husband.
• Buy insurance in case of separation or divorce. It is a must if you are a breadwinner.

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