What are the Ways to Calculate your Life Insurance Cover?

Insurance policies and other financial decisions are vital nowadays. You never know when you could need them. People are starting to think more than ever about how much life insurance they need to protect their families.

Having a family who loves us is a valuable blessing in life. You try to meet the emotional and financial needs of your family. But if you can’t provide for your family anymore, who do they look up to? You need to act now to make sure that your family will have enough money in the future.

This is why it’s important to be willing to get a life insurance policy. Life insurance protects your family’s finances. Your family can use the money from your life insurance to pay off mortgages, pay for day-to-day expenses, and reach other goals in life.

But it’s not enough to just buy a life insurance policy. The goal is to ensure that you have enough life cover to meet your family’s needs. So, now the question is: how much life insurance do you require? And how much will the right policy cost?

To seek the solution to the latter query, you can use the life insurance calculator. It helps you to figure out how much your premium could be based on the variables you enter.

A life insurance calculator or a term life insurance calculator can help determine how much an insurance policy can cost each month or year.

Here are four ways to figure out how much life cover you need:

  1. Human Life Value

Using the Human Life Value (HLV) method, you can figure out how much your potential profits, expenses, debts, and savings are worth right now. Most of the time, the HLV number is used to figure out how much term life insurance your beneficiaries would need to protect their future if you passed away.

When figuring out your HLV, you need to think about seven things:

  • Your occupation
  • Your age
  • Your employment benefits
  • Your gender
  • Your target retirement age
  • How much you make a year,
  • The financial records of your spouse and child
  1. Income Replacement Value

Using this method, you can get a life insurance policy based on the breadwinner’s lost income. It is based on the policyholder’s annual income.

Life Insurance Cover = current annual salary X years left until retirement.

  1. The Rule of Thumb for Insurance

The minimum amount of insurance needs to be a multiple of the annual income. Before deciding how much insurance coverage to get, it’s also important to consider whether someone can afford the premium year after year.

  1. Premium as Percentage Income

According to this method, the life insurance premium must equal 6% of the breadwinner’s annual salary plus 1% for each dependent.

Things that affect insurance rates

The amount that the insurance company charges the person is called the premium. The premium can be paid quarterly, bi-annually or annually. If the premium isn’t paid on time, the plan ends.

Some of the things that affect how much you pay for life insurance are:

  • Age: Younger people pay less for insurance. As you age, the chance that a provider will have to pay a claim increases. They raise the amount you have to pay to make up for their losses.
  • Gender: Women are more likely to live longer than men. The difference isn’t much, but insurance companies take these numbers very seriously. So, women usually pay a little less for life insurance than men.
  • History of health: Before giving a plan, an insurer can ask for a medical evaluation and to see the patient’s medical history. Your insurance rates will increase if you have a long list of health problems or are at risk for them, including serious ones like cancer, brain diseases, etc. Insurance companies would also look at your weight, total cholesterol, heart rate, and any other signs of possible health problems. But insurance policies might not be allowed at all if there is a severe illness that may be terminal.
  • The Policy: The type of policy you choose is another thing that will affect the size of your premium. Most of the time plans with a higher sum assured cost more than plans with a lower sum assured. Policies with longer waiting periods give you more money.

Please keep in mind that the methods above only give estimates, and the final size of your insurance premium will depend on how your insurer decides how much to charge you. According to Indian law, you can also get tax deductions based on whether you follow the old or the new tax regime (subject to change).

Also Read: These banks offer the lowest interest on car loans

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