Please read about What is Term Insurance? and Why Term Insurance?
There are different approaches to calculate the Term Cover, The one we suggest is Need Based Cover Approach which ensure to cover the basic needs of the dependents in case of an Unfortunate scenario. The below calculator provides required term plan coverage.
Please input your details and click on calculate cover required.
Cover Amount:
How much cover amount should you take? One simple approach would be to consider 20 times of your Annual Income. Or
Need Based Approach says your Term Plan cover amount should cover your Family/Dependents basic expenses and cover your Outstanding Loans. In case of an unfortunate scenario, your dependents will have basic expenses and also will not have an outstanding loan amount burden.
To calculate your cover amount, calculate your current family's basic annual expenses, multiply with years of coverage & add the current outstanding loan amount. This ensures your family maintains their lifestyle in your absence.
Cover Amount Required = Policy Term * (12 * Monthly Basic recurring expenses + one time yearly expenses) + Outstanding Loan/s Amount - *Current Liquid Assets
*If you have taken any insurance for Outstanding Loan, you need not add it in the cover or you may cancel that loan insurance, get a refund and consider it here in Term Plan.
*If you are expecting kids, please ensure to add your kids expenses as well. Just for a reference : A family of 4 living in a 2 BHK in a city like Bangalore would experience Rs. 1 Lakh for basic expenses (on an average).
*Adding Current Liquid Assets amount is optional, You can increase your cover by making it zero in the calculator.
What Factors Influence Your Term Plan Cover Amount?
Policy Tenure:
While purchasing a term insurance plan, you’ll need to choose a policy tenure—the number of years or until what age the policyholder remains covered. Term insurance is primarily designed as an income replacement, so ideally, it should last until retirement (I.e. till age 60).
Case 1 : If you expect that your dependent children may take lesser time to become financially independent (before you turn 60) you can take the life insurance cover till whatever age as per your wish. But in that case it is suggested to take it till 60 just to have that extra safety net to your family and you are expected anyways earn income till your retirement.
Case 2: If you expect that your dependent children may take longer to become financially independent, you can extend the coverage for a few more years over and above 60, But keep in my mind that you might not be earning any salary post your retirement, plus the premiums are likely higher, it adds more burden.
The average life expectancy in India is around 70. Extending the policy beyond this age could cause your premiums to increase significantly. Therefore, it’s usually best to choose a coverage period that lasts until you’re between 60 and 70.
Monthly Expenses:
Expenses—such as your child’s education fees, groceries, medical bills, transportation, Rent.
Yearly Expenses:
Expenses those are one time or less frequent in nature — such as your Vehicle/s Insurance, Vehicle/s Maintenance, Term Plan Premium, Health Insurance premium.
Outstanding Loans:
Any outstanding loans with EMIs that need to be repaid. Don't consider the whole loan amount, only the outstanding amount at the time of purchasing the Term plan would suffice.
Liquid Assets : (Optional)
Any Liquid Assets like : Fixed Deposits, Mutual Funds, Stocks etc. It is completely optional. If you want to have more cover for you family (dependents) please keep it zero.
Is inflation considered in the calculation?
Inflation is not considered in the term insurance coverage calculator, because : In a unfortunate scenario, the dependents are expected to clear the outstanding the loan amount and keep the remaining in an FD or an Annuity plan and withdraw the required monthly expenses. the returns from investment will take care of the inflation. Please make sure you don’t add inflation while considering the cover amount, you will end up taking cover amount more than required.
Still confused or want to know more?, We are here help you
or feel free to reach out at hello@honvest.com
Our certified Insurance Advisors can help you with right plan, right coverage, best premium options available
Regards,
Honvest Team.
Credits to Perplexity Labs for helping us build this calculator.
Term Insurance cover Calculator