Life Insurance Coverage Calculator

Calculate Life insurance coverage

Published On 19 Dec 2010 By . Under: Life Insurance. Tags:   

A recap on Term Life Insurance

In our posts so far we have talked about term life insurance & its benefits, and compared various term insurance plans available in the market. Now that you have decided on buying a term insurance plan you must be wondering how much insurance cover do you need? If you are under covered your family will suffer? If you opt for a cover more than required then you end up wasting your hard earned money.

In short, the life insurance coverage should be large enough to replace the income of the deceased.


Finding out the life insurance coverage you need

In order to determine the life insurance coverage you need, you need to calculate human life value. The thumb rule of while calculating life insurance coverage is that the sum assured should be atleast 4 times your annual salary. However this varies on a case to case basis.

e.g. an unmarried working professional in his early 20′s earning 4 lakhs per annum and having no financial dependents might not need a cover of Rs 16 lakhs. However a person in his late 30s earning 5 lakhs per annum and having 2 financial dependents might not find a cover of Rs 20 lakhs to be sufficient enough.

What all should you consider while calculating term life insurance coverage?

While calculating the life insurance coverage remember that life insurance aims to replace the insured person’s income. You should not aim to gain profit out of it. Term Insurance aims to replace the monetary loss of human life value caused by an untoward incident.

While deciding on your life insurance coverage amount keep in mind following points:

  • Decide on the years left in your retirement & calculate your monthly expenses as of date. Say there are 25 years left in your retirement and your monthly expense as of now is Rs 25000. In case something happens to you today, the life insurance coverage should be such that when the sum assured is invested in a fixed income instrument, the returns are sufficient enough to take care of the expenses of your family for next 25 years.
  • Cover your loans
    Say you have taken a personal loan of 4 lakhs. In case of an eventuality your family will be expected to pay back the loans you have taken. In the absence of any source of income it will make their life only more miserable. So make sure that life insurance coverage covers your loans too.
  • Consider your future expenses
    You should also keep into account any major expenses in the future, say the cost of your child’s education and marriage.

Life Insurance Coverage Calculators

Some of the useful life insurance coverage calculators are listed below:

term_life_insurance_calculator

Inflation Factor Graph - source ET Wealth Feb 2011 Edition

term_life_insurance_coverage

Inflation spending pattern table

Now you have decided your life insurance coverage. But what should be the term period? Should you go for maximum term now? That again depends on age of the individual. To know more about click here.
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