4 Ways to Calculate Coverage of Your Life Insurance Policy

1-June-2021 |

The Covid-19 outbreak has highlighted the importance of insurance policies among the other critical financial choices one should make. More so than ever before, people are now beginning to contemplate how much life insurance cover is needed to safeguard their families!


This begs the question: Why do we even need a life insurance policy? It may not seem very useful to us, but to the people we love, it can make a world of difference!


A valuable blessing in life is raising a family who loves us. You make an effort to meet your family’s psychological and economic needs. But, in an event where you’re no longer able to provide, who does your family look up to?


You should take action now to secure your family members' future economic situation.


This is where the willingness to pursue an insurance policy becomes crucial. Life insurance serves as a safeguard for your family against financial risks, which can emerge as a consequence of your untimely death. Your loved ones can use life insurance to pay off mortgages, cover daily living costs, and achieve various goals in life.


Nevertheless, just purchasing life insurance policies is insufficient. The intent is to ensure that you have adequate life insurance coverage to meet your family's requirements.  So, now the question arises: How much life insurance coverage do you need?


Looking for a life insurance calculator? Use the Tata AIA Life Insurance premium calculator to calculate the premium amount for your case. 

Life Insurance Calculator


A monthly or yearly premium for an insurance policy is calculated using a life insurance calculator or a term life insurance premium calculator. As a result, it assists you in determining the actual premium you will have to pay to get the optimal sum guaranteed.

 We'll focus on four strategies to determine how so much life insurance cover you'll require:



1. Human Life Value


The current value of your potential profits, expenditures, debts, and savings is calculated using the Human Life Value (HLV). The HLV figure is typically used to calculate the sum of money needed to protect the future of your beneficiaries through term life insurance whenever you were to pass away.


 When determining your HLV, you must consider seven factors. They  are:


  • Your occupation
  • Your age
  • Your employment benefits
  • Your gender
  • Your target retirement age
  • Your annual income
  • Your spouse's and child's fiscal records

2. Income Replacement Value


Using this process, you could be looking at a life insurance cover derived from the breadwinner's missed income post an untimely demise. It depends on the policy holder’s annualearned income and is a simple way of measuring one's life insurance coverage requirements.


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


For example, if your annual income is INR 4 lakh, you are 30 years old, and you intend on retiring after three decades. The amount of life insurance needed is INR 12 crores (4,00,000*30) in such a scenario.


3. Underwriters Thumb Rule


According to this method, the minimum amount insured needs to be a multiple of annual revenue, based on age. For example, people in the age group of 20-30 must have life insurance coverage 25 times their yearly salary, whereas those who are 40-50 years old could go for life insurance coverage valued 10-15 times their yearly revenue.


The insurance premium is charged annually. So, another important factor is one's willingness to afford the premium, year after year, before determining the scope for insurance cover.


4. Premium as Percentage Income


 As per this process, life insurance premium must equal 6 % of the breadwinner's yearly salary and a further 1% for every reliant. Let's assume the gross annual income was ₹5 lakh, and the client has a spouse and a toddler to look after. As per this process, the recommended premium would be  INR 40,000 (6*500000+1*500000*2).


 Factors Affecting Insurance Premium


 The sum charged to the person by the insurance provider is called the premium. The premium can be charged quaterly, semiannually or annually, as mutually discussed and decided among the providers and the purchasers. The scheme expires if the premium isn't paid on time.


While comparing various life insurance policy plans, the premium is a front-runner. The following are some of the elements that impact life insurance premiums:


●       Age


 One of the most important aspects impacting your life insurance premium has to be your date of birth.  It is a known fact that younger insurers pay lower premiums. When you get older, the probability that a provider will have to pay for a claim increases, and so, to cover their losses, they increase your payable amount as well.


●       Gender


 Women have a higher life expectancy than males. In India, females have an expected lifespan of 69.42 years, while males have an expected lifespan of 68.24 years. While the difference may seem insignificant, you would be surprised to know that insurance providers take these numbers very seriously. So, women often pay slightly lesser for life insurance as compared to their male counterparts.


●       Health History


 Before offering a plan, insurers can request a medical assessment and accessibility to the patient's history. Your premiums will rise if you have a list of medical problems, including severe illnesses like cancer, brain diseases, etc. Policy providers would also consider your weight, total cholesterol, heart rate, and other factors that may suggest potential medical problems. However Insurance policy may not be allowed at all in case there are some serious terminal medical problem.


●       The Policy


Another aspect that influences your premium size will be the sort of policy you go for. Proposals with a higher sum assured are usually more expensive than plans with a lower sum assured. The span of your policy also gets a say in this, as the policies with a longer waiting period get you higher profits.





Please note the above methods only indicate estimated values, and the final insurance premium size will depend upon the underwriting process your insurer has.


When it comes to saving one's life, we tend to do all that we can. So, purchasing the appropriate life insurance policy rather seems like a convenient yet essential thing to prepare for come what may!


However, one thing to keep in mind is that a life insurance policy changes with time, and you need to review your policy regularly.



People Also Ask

1. How do you calculate life insurance coverage?

2. How do you calculate insurance?

3. How much will my life insurance cost?




Need help to choose the right plan?


By submitting your details, you are giving your consent to receive SMS/Call by Tata AIA Life Insurance Company Limited or its representative, with reference to this solicited inquiry even though you may be registered on the DND list. L&C/Advt/2019/Jan/075

  • Insurance cover is available under the product.
  • The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not a guaranteed issuance plan and it will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.
  • This document is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this document is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.