Life Insurance Cover: How Much Life Cover Do You Need?

One of the common questions that a potential policy buyer may have is, “How much life cover do I need?” The sum assured forms a significant aspect of a life insurance plan. It is imperative to decide the policy coverage amount when buying a plan. But how does one arrive at a figure? And how do you know whether the life cover chosen is sufficient, or even affordable? There are several ways one can arrive at an answer to the question, “How much life cover do I need?” Some of the common methods are based on your income, HLV (human life value), or liabilities. Once you have chosen the method to arrive at a life cover, you can then use a life insurance premium calculator to figure out other related factors, such as the estimated premium you will be required to pay.

Sum assured or life cover is what your nominee will receive if they were to claim a death benefit from the policy. It also plays a role in determining your premium amount, which is one of the primary aspect when buying a life plan. It is what tells you whether the policy will fit into your overall financial plan.

Let’s take a look at how you can find the answer to the query, “How much life cover do I need?” and understand how a life insurance calculator can help you.

How much Life Insurance do you Need?

The thing to remember about your life cover amount is that the figure would be relevant to not only you but also your nominee. Your sum assured is the amount your nominee can receive after they claim a death benefit In case something unfortunate happens to you. It may become a key factor in their financial wellbeing after the person they depended on for financial support is no longer around.

If the policy is bought with riders, the benefit amount received from the rider (if claimed) is based on how much the sum assured is. Hence, it is crucial to be careful about choosing the coverage for your life insurance plan. It is preferable to not choose a sum assured figure at random. If you are looking for an answer to, “How much life cover do I need?” here are a few factors that can help you choose the suitable sum assured.

• Age

At what age you are buying life insurance can play a role in helping you determine how much sum assured you need. When you are younger, you may choose to opt for a higher sum assured amount. When doing so, you can buy a higher coverage at a relatively affordable premium, since the premium rates tend to be lower when you are younger. You can also get a policy with maturity benefits so as to use it to fulfil your long-term goals. Another aspect of buying a life cover early in life is the tax benefits.

You can start claiming tax benefits, subject to provisions stated in Income Tax Act, 1961 and as applicable, for your life plan as soon as you start paying your premiums.

• Lifestyle

The sort of life you live can play an important role in helping you determine how much coverage you seek. It is not only the way you spend, or splurge, that you ought to consider when talking about choosing a sum assured. You also need to take into consideration the kind of work you do. On the other hand, if your job puts you in physically or mentally high-risk or high-stress situations, you may also want to consider a high sum assured, as well as riders to secure your family.

• Income

Your income is also a factor that influences the way you live. When facing dire situations, you would want the maximum financial protection for your family. Thus, you can consider opting for a coverage that might be capable of providing your family with the sort of financial protection you have been providing them, at least for the next few years. It is often preferred that you choose a sum assured that is at least 10x higher than your annual income¹.

• Medical history

If you have a history of any medical conditions, or are at a risk of any critical, chronic, or terminal condition, the premiums you will have to pay, may slightly be affected. You may consider opting for a higher sum assured. Use a life insurance premium calculator to get an idea of how much sum assured you can afford. In addition to this, also consider taking suitable riders with your plan, such as the critical illness rider, among others, on payment of additional nominal premium.

How to Use a Life Insurance Calculator?

Before we can dive into how a life insurance calculator can be used, let’s take a look at what a life insurance calculator is. Life insurance plan is made up of numerous aspects, such as premium, term duration, and sum assured. Each one is connected to the other, in a way that may influence the other. Thus, all of these play a role in determining what the details of your life insurance policy may look like.

A life insurance calculator is an online tool that allows you to input some details and then gives you figures for the rest of the aspects. For example, you may be required to input your personal details, the desired sum assured, and desired term duration into a calculator, and it will give you an estimate of the premium you will be required to pay.

Commonly, you may have to input the following details when using a life insurance calculator:

• Your age
• Gender
• Sum assured
• Term duration of the plan
• Premium payment frequency
• Riders chosen

Some of the other details you may have to input in such a calculator are:

• Smoking habits
• Annual income

Once you fill these details in the calculator, it will show the estimated premium you will be required to pay. This calculation will be on the basis of the details provided by you into the life insurance calculator.

Benefits of using a life insurance calculator

Here are some of the common benefits of using a life insurance premium calculator.

• Hassle-free

Ideally, everyone wants the answer to, “How much life insurance do I need?” as well as, “Can I afford my life insurance?” A life insurance calculator helps you find the answers you seek. This way, the calculations are done automatically, and helps you get the answer you seek without much hassle.

• Low chances of errors

Since the calculation process is entirely machine-based, there are lesser chances of human errors. Hence, you can rely on the figures to get an estimate of the premium and plan your policy purchase accordingly.

• Easily available

Many insurance providers who offer life insurance plans will have their corresponding calculators listed on their websites. Thus, life insurance calculators are easily available online with insurance providers as well as third-party aggregators.

• Free of cost

Many life insurance calculators available online can be used free of charge. They require you to input the necessary details and you are presented with the data you seek.

Remember that life insurance, for many people, is a significant and long-term arrangement. Be careful about choosing your plan and specifying the details. Ensure that you select the suitable life cover and use a life insurance calculator to get a better idea of what you may have to pay into the plan.

References:

¹https://www.forbes.com/advisor/in/life-insurance/things-to-know-about-sum-assured-before-sealing-your-life-insurance-policy/

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