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Using a Term Insurance Calculator to Estimate Your Insurance Needs

Using a Term Insurance Calculator to Estimate Your Insurance Needs

Term Insurance Calculator

Term insurance is supposed to be the ultimate financial support for your family in case of your untimely demise. Thus, the benefit amount of your term plan should match whatever you will contribute towards your family’s life.

Since this contribution is a direct result of your financial worth, the sum assured of your term plan should be equal to your financial worth. So, when we estimate our term insurance need using term insurance calculator it should give us a pretty good idea of our financial worth today, should it not?

Let’s find out…

What Your Family Will Need In Your Absence?

  • Monthly kitchen & household expenses
  • Money to meet children’s higher-education & marriage expenses
  • A corpus for the post-retirement life of your spouse

Monthly household expenses

The first thing you should account for is the monthly household expenses of the family. Term insurance should either offer the family a monthly income or enough money to generate a monthly income equal to their monthly household budget.

For example: if your current monthly household expense is Rs. 50,000 (or Rs. 600,000 a year). You’d need to add about Rs. 1 crore (max.) to your term insurance death benefit.

Now in Canara HSBC OBC Life’s iSelect Star term plan you can choose whether this is paid in a lump sum or as a monthly income or even both. This will help your dependents continue their lives without stressing about the income.

Money for Retirement & Children’s Goal

In our example we have already included the money for the post-retirement expenses of spouse in the monthly household expense. That is because we considered the household to run forever. However, in reality, the major part will probably stop within 20-30 years.

Thus, over time the reduced household budget would equalize the remaining corpus and work as a buffer for retirement.

Estimating the goals’ cost would be rather simple, as you can simply take the current costs of the goals.

For example, higher education in top domestic institutions may cost somewhere from Rs. 10 lakhs to 15 lakhs. Add to this a similar amount for marriage and you have about Rs. 25 – 30 Lakh more. If you have two children, simply double it to Rs. 50-60 lakh.

What Should Be Your Term Insurance Sum Assured?

To properly estimate your term insurance need at this moment, financial planners use a method similar to the one given below:

term insurance

Explaining the Typical Costs & Assets

While you can understand and agree with most of the assets and costs the following are more than they look at the surface:

  • Home Renovation Costs: If you are staying in your own house with your family, it is likely that the property will need a major rework after 10 - 15 years. Since this could be an expensive exercise, leaving the cost out of insurance can overburden your families limited resources after your untimely demise.
  • Any Other Financial Goals: You should consider any goals which are, or going to be important for your family. For example, a trip to a specific country or culture. A business venture or activity. It’s always good to keep these aspirations covered.
  • Credit Card Limits: You should consider including your credit card limits to your insurance cover. The reason is simple, in case of sudden demise, your family will need immediate financial support, and credit cards can easily fulfil that. However, every penny spent will become a liability which the claim amount can later fulfil.
  • 50% on Equity & Gold Investments: Although it’s better that you do not consider these assets while estimating your term cover benefit, you may take 50% of their value. The simple reason is their volatility, they may be looking good right now, but you never know where they may end up at the time of claim.
  • Why Not Consider Real Estate: Real estate is not considered here for two reasons:
    1. It is not easy to convert to cash
    2. It may help your dependents generate additional income

What’s your financial worth today?

Now, taking our example one step further, let’s assume the sum total of your current assets which can be easily converted to cash comes out to be Rs. 15 Lakhs.

Thus, your total life insurance need would be somewhere about…Rs. 1.5 crore (incl. 1cr. Household + 60 Lakh for Children – 15 Lakh Assets)>

This is your approximate contribution to your family’s lives for all the years you stay with them. In a way, this is your approximate financial worth for your family.

How Does The Term Insurance Calculator Work?

The term insurance calculators work on approximation basis. The general thumb-rule in the insurance industry is,

‘10 to 20 times of annual take-home income is sufficient to look after the dependent’s expenses’

Therefore, most term insurance calculators simply ask for your current age and annual income. As in our example, the annual income of our hero could be anywhere between Rs. 12 – 15 Lakh. (That is assuming 50% of his/her monthly income goes towards household expenses)

Thus, as per an online term insurance calculator, this person’s financial worth at the moment ranges anywhere between Rs. 1.2 crore to 1.5 crores.

Now, this estimate is pretty close to the one we estimated using the detailed ‘need analysis’. So, we can say that ‘the online term insurance calculator provides a pretty good approximation of your financial worth today,’ if not the most accurate.

Choosing the Best Term Insurance Plan

Once you have calculated your financial worth, you can go ahead and look at the other features and benefits to figure out the best term insurance for your family. Few of these features we have discussed earlier, for example, regular income pay out after claim. Others that you can look for are:

  • Premium payment mode: Monthly mode is the most convenient if you are salaried. The nominal premium can be deducted automatically from your account.
  • Whole life Cover: Just in case you feel like using your term plan to ensure an estate for your children or grandchildren, a whole life term plan can make it possible.
  • Option to Increase the Cover: If you are one of the early buyers of term insurance, you may expect your responsibilities to grow as your family and responsibilities grow so should your term cover. Thus, a term plan which gives you this opportunity without having to undergo the whole underwriting process is better for you.
  • Limited Pay Option: Limited pay option can ensure that you don’t have to pay premiums after your retirement if you choose a long term cover.

So don’t compromise on your family’s financial safety. Use the term insurance calculator and estimate your financial worth to buy the adequate life cover your family will need.

Speak to an insurance specialist now!

Frequently Asked Questions (FAQs) for Term Insurance Plans

A person can only purchase a term insurance plan till the age of 65 years, and they can choose the risk coverage for up to 99 years of age. One can easily buy the best online term plan between the age of 18 to 65 years.

This being a term insurance plan doesn't offer any payout after maturity or expiration date

Each insurance company has its own term insurance premium calculator. If you want to check out the premium quote, go for the iSelect Star term plan calculator. It gives a premium amount based on your age, gender, habits, education, and annual income.

You can purchase an iSelect Star term plan anytime between 18 to 65 years of age. This is a term plan with return of premium option – that means all the premiums paid throughout the tenure will be paid back to you if you outlive the policy.

It depends on your needs. For example, if you want to cover a child's education or wedding expenses, you have to include them in your coverage. Your premium will be calculated accordingly when you buy the best term plan in India.

If your key purpose is to give your Family financial protection, go for the best term insurance plan. And if you want some savings, in the end, go for a traditional life insurance plan. iSelect Star is a term plan with return of premium option. All the term insurance premium will be paid back to you, if you outlive the policy term.

Go for at least 12 times cover than your annual income. Or you can go as far as 20 times coverage as per your needs.

The right time is when you don't have anything to keep your Family safe from financial storms, and they rely on you for financial needs.

If you are unable to make the payment or suffering from a terminal illness, the best term insurance plan pays a part of the sum insured to treat your disease.

Term life insurance plan riders are attachment or endorsements made, while taking the term insurance policy, as a supplementary coverage to policyholders. Apart from the core death benefit, term insurance plan riders offer below-given additional benefits:

  • Accidental Death Rider When a person suffers from a terminal illness, his/her family ends up spending a significant amount in treatment and medical expenses. Accelerated death rider pays a part of the sum insured in advance to cover such costs and save the family from running out of cash.
  • Accidental Disability Rider If the policyholder can't pay the premium because of an accident or permanent disability, a sudden disability this pays the premium on behalf of the policyholder till completion of policy term or for a defined duration.
  • Critical Illness Rider If the insured person gets a heart attack, cancer, or any other critical illness, this rider pays a lump sum on valid diagnosis.
  • Premium Waiver Rider If the policyholder is unable to make payments due to income loss or disability, a premium waiver rider waives off all future premium payments. And the term insurance policy remains active until the expiration date.
  • Income Rider: This rider in a term insurance plan ensures that your family receives regular income + sum insured in case of unfortunate demise of life insured.

Anyone can go for life insurance as it offers some savings after the maturity date, but it doesn't cover the protection of your family . The best term insurance plan is solely designed for taking care of loved ones if something happens to you. Term insurance plans act as a shield between your family and sudden financial fall. They make sure that your family lives a healthy life even after you. With a little amount paid per year, you can be worry-free from the family's financial conditions.

Questions that you need to ask while Buying the Best Term Insurance Plan?

  1. 1. Are you buying a term plan with return of premium?
  2. 2. Amount of premium you have to pay based on your age, habits, education, and monthly income
  3. 3. The total number of benefits covered in the term insurance plan. Do they include benefits that you care about the most?
  4. 4. How to save money on tax if you pay for the term life insurance plan?
  5. 5. Do they offer regular income options?
  6. 6. Can you change the coverage and premium in the future?
  7. 7. Does the claim consider valid if death occurs outside India?
  8. 8. Which kind of death is not covered by a term insurance plan?
  9. 9. Can NRIs take a term insurance plan? If yes, what are the conditions?
  10. 10. Does the term insurance plan have a cash value if you decide to cancel the term insurance policy?
  11. 11. Under what circumstances can a term insurance plan be cancelled?
  12. 12. Can I pay the premiums online or make electronic payments?
  13. 13. What will happen to the term life insurance plan if the life assured starts smoking after purchasing the policy?
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