How to Use a Life Insurance Calculator to Understand Your Overall Protection Needs?

In today’s unpredictable times, it is critical to safeguard your dependents’ financial security even when you are not present. Purchasing a term plan is a straightforward and cost-effective method to accomplish this. Term insurance provides an amount of life insurance coverage for an affordable payment.

However, the question is how to choose the best policy that meets all your needs and offers you the best benefits. Answer – by using a life insurance calculator. This calculator will recommend policies based on your needs so that you can make the right decision. Let’s see how to choose this calculator.

Benefits of term insurance plans

There are many types of term insurance plans available in the market, each offering different benefits. Some expected benefits you may get in every term insurance plan are:

1. Add on riders, such as terminal illness coverage
2. Coverage against critical illnesses
3. Income tax benefits
4. Lower premium
5. Customised plans
6. Express claim settlement
7. Option to increase life coverage after marriage or childbirth

What is a life insurance premium calculator?

This calculator is a financial tool that helps in calculating the premium you will pay based on the coverage you need. You can also compare the different types of term insurance along with their rates and benefits to make an informed decision for yourself and your family. Once you have the various plans, you can purchase the one that suits your needs.

Why do you need a life insurance calculator?

This calculator is an easy way to understand your total coverage requirements. By entering simple information, you can get an estimated amount you need as a term plan coverage. Some of this information is listed below:

1. Annual income
2. Number of dependents
3. How many years do they need your dependency
4. Debts
5. Children college fees
6. Savings
7. Other life insurance coverage, if any

How to decide on the perfect coverage amount?

The first step is determining the right plan; the second is understanding your coverage amount. Listed below are five methods to consider when deciding on your coverage amount.

1.      Human life value

Human life value means the total value of your potential expenditures, profits, savings, and debts. This amount is needed to calculate how much your beneficiaries will need through your insurance after you are not there. Things to consider when deciding on HLV are:

• Occupation
• Age
• Employment benefits
• Gender
• Approximate retirement age
• Annual income
• Spouse and children’s fiscal records

Some of these parameters are a part of the calculator that helps you in figuring out the total coverage amount.

2.      Income replacement value

Using this method, you may be looking at life insurance coverage based on the breadwinner’s lost income following an unexpected death. It is based on the policyholder’s annual earned income and is a straightforward method of determining one’s life insurance coverage needs. The simple way of calculating is life insurance cover = total annual income x number of years to retirement.

3.      Underwriters thumb rule

According to this strategy, the minimum amount covered must be a multiple of the yearly earnings, depending on age. For example, those aged 20 to 30 should have life insurance coverage valued at 25 times their annual salary. However, those aged 40 to 50 should consider life insurance coverage priced at 10-15 times their yearly income.

The insurance premium is charged yearly. Another critical thing to consider is one’s desire to pay the payment year after year before deciding on the scope of insurance coverage.

4.      Premium as a percentage income

This process says that the policyholder should pay the premium equal to 6% of their annual salary. In addition, they must also add 1% for every dependent. For example, the annual salary of X policyholders is INR 5 lakh, and they have a spouse and child to take care of.

The process suggests a premium of INR 40,000 (6*5,00,000 + 1*5,00,000*2). So, the coverage amount should be equal to the premium amount of INR 40,000.

5.      Expense substitute

You must use this method to calculate your day-to-day family costs, debts, and goals, such as children’s education, as well as provide for financially dependent parents for the remainder of your life. The sum you arrive at represents your family’s total financial need.

Next, deduct the current value of your investments and any existing life insurance. When determining the value of your assets, exclude items like your home and automobile because your family members will most likely continue to use them. You may calculate how much insurance you require by deducting investments and insurance coverage from your expenditures and objectives.

Conclusion

The life insurance coverage never remains the same and changes with time. Any major life event will demand a change in life insurance coverage; therefore, reviewing the needs on time is very important.

You can choose one of the ways mentioned above to determine how much coverage you will require. Then, using the calculator, figure out the different policies that are willing to offer that amount with affordable premiums and other benefits.