Guide to Calculating Your Term Insurance Needs and Premium

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In life, nothing gives more pleasure than scaling newer milestones together with your loved ones. Whether it is graduating college, starting a new job, getting married, starting a family or sending off your child to school, a real sense of accomplishment is only felt when we have our family to share the moment.

However, life is short, and you cannot always foretell what the future holds. What you can do, however, is make sure that your family never has to depend on anyone but themselves, to accomplish their dreams. That means, your family continues to work towards realising their real potential and living a fulfilling life, even when you are not there to see them through to the finish line.

To do this, you need first to make sure that your loved ones never have to face a financial crisis in your absence. With a term plan in place, therefore, you can easily help mitigate the risk while securing a financial security net for your spouse and children.

How Can Term Insurance Help?

Term Insurance Plans are primarily pure life insurance plans, which are specifically designed to secure your family’s financial needs, in case anything happens to you. As per the policy, therefore, your family/dependents are eligible to receive a lump sum amount, if you are diagnosed with a critical illness or in case of your demise, during the policy tenure. Some of the crucial aspects of term insurance include:

Deciding a Cover Amount

First and foremost, you need to determine what cover amount would be appropriate for your family as a safety net for the future. Ideally, you must choose the sum assured, which is 20 to 25 times of your existing annual income. Also, if you have any significant financial liabilities such as home loans, four-wheeler loan or any other pending payments and debts, you would have to add them too to the cover amount calculation under the term plan.

This way, the liabilities wouldn’t fall on your family, if anything happens to you. Overall, you will need to factor in the following values while calculating the sum assured:

  • Annual income at present
  • All debts such as home loan, credit card debts, personal loan etc
  • Monthly household expenses such as grocery, children’s school fees, utility bills etc
  • Rate of inflation
  • Funds required for your child’s higher education, marriage or any other milestone

Choosing the Policy Tenure

The tenure of the term plan is another aspect of buying term insurance that you need to plan carefully. Ideally, the policy duration should be long enough to suffice your working years. It means that you must buy a term plan as soon as you can, after starting your career and select the maximum duration that your insurer offers so that you are protected under the plan till your retirement age or more.

Also, the tenure should also be such that extends through to cover all significant milestones in your life, including the birth of your child, their higher education and their marriage. This way, no matter what life stage you are in, you can make sure that your family is always protected financially.

Calculating the Term Plan Premium

Once you have decided on the sum assured and the policy tenure, the next step would be to calculate the premium required to avail the desired sum assured under the plan. To calculate the premium amount payable, you can use an online term plan calculator, which is readily available on the websites of major insurance providers. The process of calculating the premium payable is described below:

  1. First, you would have to provide your details such as name, date of birth, gender, marital status and income into the calculator.
  2. Next, you would have to specify whether you are a smoker or non-smoker. Apart from this, some calculators may ask you to enter your Aadhaar, PAN, and bank details.
  3. The third step would be to specify the sum assured you want, the policy tenure and the premium paying mode (whether monthly, quarterly, half yearly or annual).

Choosing the Riders and Add-ons

Riders and add-ons can help place an extra layer of coverage over your term insurance plan, to improve its overall efficacy. Reputable insurers including Future Generali offer an array of rider options including:

  1. Monthly Income

This rider helps ensure that your nominee receives a monthly income for a specific number of years until they can make a living on their own. Usually, the monthly income is above and beyond the sum assured of the term plan.

  1. Accidental Death or/and Disability Rider

The accidental death or/and disability rider helps to add the amount, above and over the sum assured of the term plan, if you sustain any disability or are critically injured in an accident.

  1. Waiver of Premium

When you opt for a Waiver of Premium rider, it helps waive off any future premium payments under special circumstances, when you are unable to continue paying them. These conditions may include loss of income due to any disability or terminal illness.

Conclusion

Regardless of what future may hold for you, you can always seize control of your present and prepare for whatever comes your way. With a term plan in your kitty, you can make sure that your family remains financially secure even after you are no longer with them. Term insurance plans are not only cost-effective, but they also help mitigate the risk to a great extent.

Thus, you need to be diligent and thorough with your approach when you buy term insurance online. Also, you need to think big when it comes to deciding crucial aspects of the policy such as the sum assured or the policy tenure. You need to consider your lifestyle expenses and existing finances into consideration while calculating the cover amount.

You can also take help from an online term plan premium calculator to know what needs to be done to protect your family against any future financial crisis.

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