How To Calculate Life Insurance Coverage?

Why is it Important to Opt for the Right Life Insurance Coverage Amount?

It is important to carefully choose your life cover amount as this is the amount that will be paid to your grieving family in case you suffer an unfortunate death during the policy term. This amount will help your family fulfil their financial needs and act as an income replacement in your absence. Thus, before choosing the ideal life cover amount, you should always assess your annual and monthly income, your family’s financial needs, potential inflation, and other factors. 

How Can I Calculate My Ideal Life Insurance Cover Amount?

Here are a few ways that can help you calculate the right life insurance cover amount as per your profile:

1. Human Life Value

   The human life value calculator makes it easy to check the ideal coverage amount for your profile. Simply select your age, enter your annual income, and provide the amount of your existing life insurance (if any). Then, the HLV calculator will display the suitable cover amount for your profile.

2. Replacement of Income

   If you are the family's main breadwinner, your grieving family will also suffer financially in your absence, as their only means of income will also be lost. With the right life insurance plan and suitable payout benefit option, the death benefit can help your family replace your income and fulfill their financial needs, such as paying the rent, paying off any remaining loans, and paying for the child’s fees.

3. General Thumb’s Rule

   As per the general thumb’s rule, an individual in his 20-30s should buy life insurance of a sum assured at least 25 times their current annual income. For someone who is aged between 40-50 years, the ideal sum assured would be between 10 to 15 times their current annual income. 

4. Future Financial Goals

   The life insurance coverage amount in case you outlive the policy should be enough to cover your and your family’s financial goals, like paying for your child’s higher education, wedding, or funding their future businesses. Different types of life insurance plans, like term insurance with return of premium, pay back all the premiums paid throughout the policy term.

How Does the Life Insurance Payout Impact Your Family?

Choosing the right life insurance payout option is essential in ensuring your family’s financial stability in your absence. To explain the importance of it, let's take a look at the example:

Suppose Karan, the main income earner of his family, buys term insurance and chooses monthly income as the payout option. But he suffered an unfortunate death in the 5th policy year, and his family is left without any source of income. Since he opted for the monthly payout option, his family receives the monthly income that replaces his income for his family.

How to Calculate the Premiums for the Right Life Cover?

After figuring out the right life cover suitable for your profile, here is how you can calculate the premiums for the suitable life insurance:

Step 1: Visit the life insurance calculator page of Policybazaar

Step 2: Select your age, gender, and smoking habits rightfully and choose the right life cover and cover till term 

Step 3: The lowest premium applicable to your profile will be displayed on the screen. You can click the ‘check your premium’ button to see the available plans and choose the most suitable life insurance plan.

Wrapping it Up!

The life insurance cover amount is essential in ensuring your family’s financial stability in your absence. Thus you should carefully choose the life cover amount at the time of buying the policy. Not only that, the right benefit payout option is also important in fulfilling your family’s financial needs. Therefore, it is suggested that you take a thorough look at the policy documents and understand the right option for your family.

Note: Check all the best term insurance plan in India.

Note: You should also check the benefits of term life insurance if you are planning to purchase the term insurance plan.