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Ref. No. KLI/22-23/E-BB/492
Choosing the right term cover can be confusing and overwhelming for some. After all, it is about your family's financial security. Here are five ways of calculating the right term cover.
Summary:
Term life insurance is one of the most affordable ways to secure your family’s future. However, the policy is only as good as the cover. Keep reading to know the top five ways to calculate the appropriate term life cover.
Choosing the right term cover can be confusing and overwhelming for some. After all, it is about your family’s financial security.
Let’s look at 5 ways of calculating the right term cover
1.Thumb Rule
One of the most commonly used ways to determine the appropriate term life cover is multiplying your current annual salary by 10-20 times. While this method is the easiest way to calculate the cover, it may not be the most accurate method. This is because it doesn’t consider other factors such as future liabilities, meeting financial goals.
2. Years to Retirement
This method is very similar to the previous rule, but the multiplier is decided based on the years left for the policyholder to retire. To get your life cover, you have to multiply your current annual salary by the number of years left to retire. While this method is also relatively easy, it again may give you an inaccurate cover as it is based on your current annual income and years left to retire.
3.Expense and Liabilities Replacement
This method stems from the concept that term life cover should take care of the family’s future expenses and liabilities in case of the policyholder’s death. In this method, you can calculate the life cover by finding out your total household expenses now and in future, adding your liabilities and deducting your investments and assets apart from the ones already in use by your family. This is a slightly more accurate method of calculating the life cover but may be complicated for a few people.
4.Meeting the Financial Goals
Very similar to the previous method, this looks to meet the financial goals rather than the expenses and liabilities. In this method, you can list down all your future plans and the money you will need to achieve these goals. Once you have that, you can subtract the assets you already hold to calculate the life cover to help your family meet all the financial goals.
5.Human Life Value (HLV) Method
One of the best ways is to calculate the human life value of the policyholder. This considers various factors such as your current income, your future expenses, liabilities, assets, and goals to come out with a figure that helps determine the financial loss a family may face in case of the policyholder’s death. While it may sound complex, there are HLV calculators online to help you know the term life cover easily and quickly.
Consult an Insurance Advisor or Financial Planner
Your last bet is to get in touch with a certified financial planner or a life insurance advisor to figure out the right term cover for you. They will take into account your goals, objective of buying a term plan, liabilities, assets, and the financial health condition of your family to help you identify the right term cover amount.
Whatever method you choose, don’t delay buying a term cover. You can always adjust your term cover or add more coverage as you age and add more assets or liabilities to your portfolio
Ref. No. KLI/22-23/E-BB/2435
