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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:
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
5. 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:
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.
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.
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