This document outlines a 4-step test to determine if someone needs life insurance: 1) If you have no dependents, you do not need life insurance. 2) If your spouse does not work, life insurance for them is unnecessary as premiums are better spent elsewhere. 3) Parents need risk coverage for children but should also invest in child plans or equity funds. 4) If you are debt-free and assets generate enough income for your family, insurance is not needed. The final paragraphs provide an example and conclude that if the 4 steps do not apply and family depends on income or debt exists, then life insurance is necessary.

1. Do you need a
Life Insurance?

2. There is a misconception that
everybody needs life insurance.
If you have dependants, you
definitely need life insurance.
However, follow this four-step
test to guage whether or not
you need life insurance!

3. Step 1:
If you have no dependants and do not plan
to have in the foreseeable future,
you do not need life insurance

4. 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

5. 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.

6. 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.

7. 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.

8. 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.

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