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2 mins Read | 1 Year Ago

Four methods to calculate how much Term Insurance coverage you will need

Four methods to calculate how much Term Insurance coverage you will need

When opting for the right Term Life Insurance Plan you might be confused about selecting the appropriate sum insured. With rising inflation rates around us, opting to invest in a Term Insurance has become more prudent than ever. Therefore, let us learn about the more subtle ways to estimate a Term Insurance coverage for the long run.

Most people make the mistake of seeking guidance on the matter of ‘sum insured’ from friends and family while opting for their Term Life Insurance Plan. But this could put you at a greater risk, as your sum insured is supposed to cater to your own unique financial requirements. If you do not make the right calculations, you might later end up with an inadequate sum insured.

So, here’s how to calculate Term Insurance coverage properly:

1. Human Life Value

Most insurance companies use this method to calculate the Term Insurance coverage. They may use a Human Life Value calculator to determine an individual's financial stature in their family. You must remember that every insurance firm has a different way of calculating this amount. The amount of Human Life Value is bound to differ basis the insurer you have opted for. But the essential factors that remain constant are age, gender, retirement age, annual income and even your current savings. Outstanding loans and current life insurance covers are also taken into consideration.

2. Income Replacement Value

When the family's sole breadwinner passes away, the family might be swarmed by a host of financial issues. The major focus is now drawn towards the endeavours to replace the breadwinner’s overall financial income during the years they were alive. This can help the family continue to cater to their financial needs, expectations and preferences with minimal compromise.

Generally, here’s how an Income Replacement Value is estimated -

Current annual income X No. of years left for retirement

Therefore, calculate accordingly and learn how much sum insured you could opt for in the years to come. This method might help secure your financial future and that of your family’s.

3. Expense Replacement

Every family is responsible for managing their day-to-day expenses including children’s education, household necessities and paying off their outstanding loan. But the sole breadwinner’s demise can jeopardise everything. Thankfully Life Insurance Policy Plans like a Term Insurance Policy promises to take care of the crises with Expense Replacement. You can calculate the total expenses to understand the actual monetary support your family might need in the future. To acquire the correct life insurance coverage for the future, you need to deduct the investments and the existing assets.

4. Underwriter’s Thumb Rule

According to this rule the individual opting for a Term Insurance policy must have multiple times more sum insured than their annual income. In many other cases experts also suggest that you go for a Life Insurance policy that provides ten times more sum insured than the present annual income. Keeping this in mind you can begin to scout.

Key Notes

Life Insurance Policy Plans can be highly effective for anyone looking to secure their financial future. But it is important to invest wisely and after careful consideration of all the factors amongst which checking the ‘sum insured’ is of utmost importance.

At ICICI Bank you can get the most out of our affordable and flexible Term Insurance Plans. We propose to settle your claim in 3 rapid steps and save sufficient time. You can also protect your cards and eliminate the probability of losses. Visit the website for more information on Life Insurance Plans.

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