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# 4 Simple Methods to Calculate : How Much Term Insurance You Need

September 01, 2022

Table of Content

## An Introduction

• The pandemic has highlighted the importance of life insurance as one of the most critical financial decisions one can make. Following the outbreak, there was a surge in demand for life insurance products. When it comes to life insurance, term policies are the most cost-effective because they provide the greatest coverage for the least money. Term insurance is the most basic type of life insurance, and it pays out the sum assured if the insured dies during the policy's term. If the insured person lives to the end of the term, there is no payment.

• However, simply purchasing life insurance is insufficient. The idea is to have a large enough sum assured to cover your family's requirements. But how much is sufficient? Insurance protects you against the untimely death of the breadwinner, ensuring that the family's future lifestyle or ambitions are not affected. The cover is based on the future value of the goals you've set for your family, not on your current income.

Let’s see 4 four methods for calculating how much term insurance you need below:

• ### Human Life Value

The Human Life Value is used to calculate the current value of your projected profits, expenditures, obligations, and savings (HLV). When you die, the HLV figure is often used to calculate the amount of money needed to protect your beneficiarie's futures through term life insurance.

• ### Replacement of income Value

Using this method, you could be looking at a term insurance policy based on the breadwinner's lost income in the event of an unexpected death. It is a straightforward technique of determining one's life insurance coverage needs and is based on the policyholder's annual earned income.

Life Insurance Coverage = current yearly wage multiplied by the number of years till retirement.

• ### Expense substitution

Individuals must calculate their day-to-day family expenses, debts, and ambitions such as children's schooling, as well as providing for financially dependent parents for the rest of their lives using this strategy, which is advised by financial advisors. The entire amount of money required by your family is the figure you arrive at.

The next step is to subtract the current value of your investments and any existing life insurance. Exclude assets such as your home and car when assessing the worth of your investments, as your family members are likely to continue to utilise them. You can estimate how much insurance you need by subtracting investments and insurance coverage from your costs and goals.

• ### Rule of the underwriter

The minimal amount covered, according to this formula, must be a multiple of annual revenue multiplied by age. People in their 20s and 30s, for example, need life insurance coverage of 25 times their annual wage, whereas those in their 40s and 50s can get life insurance for 10-15 times their annual income.

The insurance premium is paid once a year. Another key issue to consider before deciding on the breadth of insurance coverage is one's desire to pay the payment year after year.

## In A Nutshell

Please keep in mind that the methods above are merely estimates, and the size of your final insurance premium will be determined by your insurer's underwriting procedure. When it comes to saving someone's life, we usually go above and beyond. As a result, obtaining the suitable life insurance coverage appears to be a straightforward yet necessary thing to plan for, whatever the case may be! However, keep in mind that life insurance policies vary with time, and you should examine your policy on a regular basis.

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ARN: ED/08/22/28637

Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

Written By:
Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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