My young friend, Raju ( name changed) stays on Ghodbunder Road. His 2BHK home was purchased last year at 30 Lacs, He got a new Santro for 4 Lacs. His house is insured as required by rules of housing finance company, his car is insured as per RTO rules. My dear friend who toils hard to own these assets worth more than 50 lacs in todays market has got a life insurance for a measly 5 Lacs. God forbid, something happens to him, what will be the cost of living and maintaining these assets for his family members.

The real asset is the person who created all these economic assets and is responsible for their maintenance.

Every asset has a value. The purpose of insurance is to protect the economic value of assets. An asset is expected to last for certain period of time during which it is expected to generate income to the owner. An accident or some other bad event may make the asset incapable of generating further income. Insurance is the mechanism which takes care of such bad events. It compensates the owner for the loss suffered, upto a certain extent.

In case of human being Insurance protects, upto a certain extent, the loss suffered due to following uncertainties :

Early death
Longevity (common feature due to medical advancement)
Disabilities
Sickness
Unemployment (cushion for sudden loss of job)

While Life Insurance acts as a cushion for the dependents in case of early death of main income earner of family, it acts as a continuous source of income in case of other contingencies mentioned above. In insurance terminology first one is Death Benefit and other is Survival Benefit.

There are basically two types of Life Insurance. Term Assurance which offers only death benefit and Pure Endowment which offers only survival benefit. All Insurance plans are combinations of these two basic types.

When you take a Life Cover, you create an Estate; an asset in the Balance Sheet of Life.

Try this simple exercise on a piece of paper :

Add up you cash & bank balance, Fixed Deposits, Shares (at purchase value), Life Insurance (sum assured plus vested bonus), Provident Fund, Gratuity (if completed five years in present job), all other investments. This is the total of all income generating assets owned by you.

Add up housing loans, personal loans, future expenses like education/higher education of children, marriage expenses, your fixed monthly expenses post- retirement. This is the total of your total liabilities or payments/expenses to be made by you.

Deducting the Liabilities from assets we get our Net Worth. Net worth is the capital available for generating Income for post retirement days.

Expect a decent return of 10% on the available capital.

Congratulations... If you are getting a surplus of assets. Just in case the total is negative, remember the best way to reduce the deficit is to create an Instant Asset by purchasing a Life Insurance Policy.

Remember you do not need Life Insurance. Your family needs it.

Act today........... Tomorrow is another day.