An Introduction to Term Insurance Calculator

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TERM INSURANCE CALCULATOR 

If you are a breadwinner of the family, and there are many dependents, you must have adequate term insurance. But the question that everybody has in mind is how much is the exact cover required. Well, fixing a monetary value to human life is a daunting task. Several factors go into the determination of sufficient insurance coverage required.

Who needs Term Life Insurance?

Life Insurance can be a source of ‘income replacement’ for the bread earner of the family. Term insurance or a life cover should be the first insurance for every earning member of the family, especially when he has members financially dependent on him. It’s the most important layer of protection for the family as it assures that the family does not suffer financially in an unfortunate event.

How much coverage do you need?

Many of us understand the need for the term insurance or life cover; it is equally vital to ensure we are adequately covered. Inadequate coverage is the same as no cover.

Below are factors that help you calculate the exact life cover that you must have:

Need-Based Evaluation: You need to first shortlist your short-term and long term needs. Choosing adequate life insurance coverage should be based on your need. If you are the breadwinner of the family, the first thing that needs to be planned is ‘income replacement’ in case something happens to you. Income requirement of your family is the major determinant in calculating the life insurance coverage.

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You never want to let your family down. You should ensure to have a large enough coverage that can replace your income in line with inflation. You should have a little extra to fulfill the other important needs such as your child’s education and marriage. Also, you need to consider your debts. Your insurance coverage should be adequate to pay off such debts in case you are not around. Basically, you need to evaluate your needs and your family’s needs to determine the extent of life cover you should avail.

Current Income Level: Your current income level decides the extent to which you can afford to pay for life insurance. Your lifestyle and pattern of spending depend on your level of income. Hence, one must avail of insurance coverage of 8-10 times their annual income.

Present Age: Life insurance becomes costlier with the growing age. Your age is a crucial element in deciding the life cover that you can afford. Premiums are relatively cheaper when you are young. Not every individual needs insurance of higher coverage. Determine the term insurance coverage considering your present age and the other assets you may own.

Future Financial Obligations: You may have to set aside money for your daughter’s grand wedding. You may have to pay for your son’s dream education and many more obligations like this. When you have adequate insurance cover, all such long-term goals can be achieved without any worry even when you are not around.

Tax Benefit: Consider the tax benefits that you can avail under Section 80C for the premium paid and under Section 10 (10D) for the payouts received (Sum + Bonus, if any).

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Make a list and calculate:

After considering each and every factor mentioned above, you may end up with a life insurance figure that you may not be able to afford. In such cases, you can do an analysis of a family’s need and available resources to meet them. Here are some simple steps that you can follow

List out all your emergency expenses, debts to be paid off and the other short-term requirements

List out all the long-term financial obligations such as higher education, marriage, etc.

Add up the cost of all the above expenses and obligations.

Calculate your monthly or yearly maintenance expenses such as travel, food, clothing, tuition fees, and all the other needs of your family.

Once you are clear about the family income need you have to check the available resources you have to meet them. You have to add up all your investments starting from your savings account to fixed deposits and investments in other asset classes like stocks and mutual funds.

The difference between your family’s needs and available resources will give you the figure of required life insurance coverage!

Conclusion:

To sum it up, it’s important to determine the extent of insurance coverage required as soon as you realize the need for insurance. By using a term life insurance calculator you will be able to derive at the right amount required to protect your family’s future. Always remember, term life insurance is a pure protection plan and not an investment product. Hence, avail of the coverage that is needed for you based on your age, income, and obligations.

 

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