It may be challenging to determine the right amount of coverage for your term insurance policy. Too much coverage may lead to unnecessary expenses, while too little coverage may leave your family financially vulnerable. A term plan calculator is an important resource in this case. According to your income, debts, and long-term goals, it helps you approximate the ideal sum assured.
This piece will assist you in grasping the process and key points if you do not know how to use a term plan calculator.
Term Plan Calculator
A term plan calculator is a web-based tool that helps estimate the appropriate amount of life insurance coverage. For outstanding loans and lifestyle choices, the calculator suggests a coverage amount that aligns with your financial obligations and dependents’ future needs.
Why Should You Use a Term Plan Calculator?
- Accurate Coverage Estimation
It eliminates cases of underinsurance or overinsurance by recommending a coverage amount based on financial obligations and future needs.
- Easy and Time-Saving
You do not need to approach an insurance agent or even a financial advisor so as to get an estimated coverage amount.
- Customisable Results
There are further options you may control, including tenure, coverage amount as well as further rider to personalise your plan.
- Helps in Budgeting
It assists you in striking a balance between cost and coverage ensuring affordability while securing adequate financial protection.
How to Use a Term Plan Calculator?
Here are the easy steps to determine the optimal coverage amount with a term plan calculator:
Step 1: Provide Your Personal Information
- Age
- Gender
- Smoking status (smokers might pay more premiums)
These details influence the premium calculation.
Step 2: Provide Your Yearly Income
Your income is used to estimate how much financial security your dependents would require in case of your death. A general guideline is to have coverage equal to 10-15 times your yearly income. But the final amount should also factor in your family’s financial needs, liabilities, and long-term goals.
Step 3: Determine Your Liabilities
List the following details:
- Home loans
- Car loans
- Personal loans
- Credit card balances
The coverage amount must be sufficient to pay off pending liabilities so that your family members are not left with repayments.
Step 4: Take into Account Future Financial Plans
Consider significant expenditures such as:
- Children’s education
- Marriage costs
- Spouse’s retirement planning
Such expenditures must be included in the coverage amount.
Step 5: Choose Policy Tenure
Your term plan should ideally extend till your retirement age (between 60-65 years) to provide financial protection in your working life.
Step 6: Select Additional Riders (Optional)
- Critical Illness Cover: Provides a lump sum payout upon diagnosis of a covered critical illness.
- Accidental Death Benefit: Offers an additional payout in case of death due to an accident.
- Premium Waiver: Waives future premiums in case of total disability or critical illness, depending on the policy terms.
Adding riders increases the premium but enhances overall financial protection.
Step 7: Receive Your Coverage Quote
Based on your inputs, the term plan calculator will suggest an estimated coverage amount and premium. You can adjust certain parameters to find the most suitable policy.
A term plan calculator helps determine an appropriate coverage amount while ensuring financial security for your family without overburdening you with high premiums. By evaluating your income, liabilities, and future financial goals, you can make an informed decision before purchasing a term insurance policy.
Anantha Nageswaran is the chief editor and writer at TheBusinessBlaze.com. He specialises in business, finance, insurance, loan investment topics. With a strong background in business-finance and a passion for demystifying complex concepts, Anantha brings a unique perspective to his writing.
