How do I decide if I am actually under-insured?

When Rajiv met his financial advisor for the first time, he started off quite confidently. He had a life cover of Rs 25 lakh and he believed it was more than sufficient for his family of three. However, when Rajiv sat down with his financial advisor, he was in a state of shock. The advisor told him that a corpus of Rs 25 lakh will have to be invested in a liquid fund as the family’s risk appetite would be too low. A safe liquid fund would earn around 5.5% annualized. If you remove the tax impact, the family would be left with about 4.5% net return on the liquid fund. That would translate into an annual post-tax flow of Rs 112,500 which translates into Rs 9,375 per month. That was when Rajiv realized the enormity of the problem because the amount would be about 1/10th of his current monthly expenses. Here is how Rajiv should go about the task.

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