The current pandemic has taught us a valuable lesson about the great uncertainties of life. By now, you may have realized how important it is to secure your future, and one way to do so is by building a sound financial plan. You need to ensure that your loved ones will never have to sacrifice their comfort and stability even when you are not there to look after them. Purchasing an online term policy will help you do that.

What is a term plan?

To understand what term insurance is, you must first know how a life insurance plan works. A policyholder ensures their life with a cover when buying the plan. If an unfortunate event leads to the insured’s absence, the insurer pays the death benefit to their nominees. A term plan is a pure form of life insurance policy that pays a large sum assured at a nominal price. The sum assured depends on your personal preference and needs. If you are unsure how to determine how much cover you require, these four methods can help:

1. Human life

Your life’s worth depends on how much your family relies on you financially to maintain their lifestyle. Your income, monetary goals, current liabilities, and future financial obligations are the factors that determine your life’s value. It would help if you kept the inflation rate in mind while calculating how much money your family will need to sustain in your absence. Once you determine your life’s economic value, consider the amount of life cover you need. Most insurance providers recommend this method to calculate the required cover value.


2. Income replacement

If you are the family’s sole breadwinner, consider opting for a term insurance policy cover to substitute the income in your absence. To calculate this, you should multiply your yearly income by the number of years left until retirement. So, if you will retire in 20 years and your yearly income is INR 12 lakh, the ideal cover value should be INR 2.40 crore. However, some experts suggest that this method can advise a much higher cover than you require.

3. Expense replacement

When buying a policy, using a term plan premium calculator can help determine the cost. However, you need to provide the coverage amount needed to use the calculator. One effective way to determine the value is by using the expense replacement method. Here, you must first calculate your household expenses and other financial liabilities, such as the monetary support required for your loved ones and children’s education. If you have existing life insurance and investment funds, deduct their value from the expense estimation. The result will clarify how much cover your family needs to support the expenses in your absence.

4. Underwriter method

This is a standard method that insurance providers use to calculate the amount of cover you require. Under this rule, you need to multiply your yearly income by 10, ensuring that your dependents will get enough money to maintain their lifestyle for ten years. However, many experts believe that the amount might not be enough considering inflation and your family’s future financial needs. According to insurance specialists, a cover value of 15-20 times your yearly income should be adequate to help your family lead a financially comfortable life. By using these methods, you can get an idea about how much coverage you want. Once you know that, a term plan premium calculator will help you compare different policies to find an affordable option.