How much life insurance cover you should have?
Use this calculator to find adequate life insurance cover needed to protect your family and to take care of their financial goals.
Adequate Life Insurance Cover Required
Human Life Value Approach
Income Replacement Approach
Need Based Approach
How to Plan and Pick the Right Life Insurance
What is a Life Insurance Fund?
Life insurance is an agreement between the insurer and the policyholder. In the agreement, the insurer mentions a specific amount of death benefit to be given to the beneficiaries. The main aim of the policy is to provide protection to the surviving dependents, after the demise of the insured.
It is extremely important to carefully scrutinise the life insurance benefits you and your family want to avail.
There are a number of different insurances. We take a look at some-
The Vanilla old fashioned insurance (Term Insurance)
- A plain insurance plan with single premium options.
- It assures your family with the lump sum amount after your death.
- It should also be noted that the sum of the insurance should be at least 20 times more than your current annual income.
Accident cover insurance (Rider)
- If you are willing to invest in the extra premium, then you can take the accidental cover insurance.
- The benefit of this cover is that it protects you against a large number of accidents and uncertainties.
- It offers various benefits to your family member which is in addition to the lump sum payment.
Critical Illness (Rider)
- Any kind of insurance does not secure you against any kind of major illnesses, but if you do have a history of family illnesses for e.g. - cancer, it is necessary to get a financial insurance cover in the form of critical illness insurance plan.
- Even sudden illnesses can occur at any age for which this can act as an extra cover.
Family can Receive Benefit even after your death-
- Provides stability and security to your family.
- Your family is able to have a source of income even after your death.
- However, before opting for such a policy, check various deductions and covers.
How Should you Choose Your Insurer?
- The insurance company should be a well-established and credible organization. It should have the claim processing capability
- Look at the Claim Settlement Ratio on the IRDA website . However after 3 years of insurance, the insurance company cannot deny claims unless there is a case of proven fraud claims
- Thus corporate governance, Asset management of the company and management reputation should be good enough parameters to choose your insurer
How to use Orowealth Life Insurance Calculator
Life Insurance is an important parameter to decide how much cover you should have. As per various thumb-rules it should be around 20-25 times your income.
Ensure you and your family ‘protection and calculate how much insurance cover you need with the Orowealth Life Insurance Calculator.
- Mention your current age (in years)
- The Retirement age or (the age you wish to retire)
- Your current surplus income
- Your monthly expenses
- Payable taxes
- Your total working life span
- The expected inflation rate
- Current value of the assets and investments
- The Insurance premium
There are typically 4 ways to calculate your life insurance coverage.
Method 1-The Human Life value
In this method the amount of life coverage you buy is directly proportional to the economic value and is based on the current rate of inflation
Method 2- The Income replacement value
A basic method of calculating your life insurance covers on the basis of the annual income. For e.g. - The Annual income * by the number of years left for retirement.
- The number of dependents and their needs
- Children (education expenses, marriage)
- Non-working spouse (if any)
- Lifestyle needs of your family
Method 3- The Need Analysis
The calculation is done on the basis of your day-day expenses till the life expectancy of the youngest member of the family. The various factors to consider here are-
Method 4- The premium as a percentage of the income.
According to this method, the breadwinner’s annual income along with an additional 1% of each dependent should be spent on life insurance.
The Life insurance covers changes along with time and should review your insurance needs and as when regularly.