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 term insurance, 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 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 coverage 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 to keep 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 energy 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. However, some experts suggest this method can advise a much higher body than you require. To calculate this, you should multiply your yearly income by the number of years left until retirement. So, if you retire in 20 years and your annual income is INR 12 lakh, the ideal cover value should be INR 2.40 crore.

3. Expense replacement

When buying a policy, using a term plan premium calculator can help determine the cost. However, you must provide the coverage amount required to use the calculator. The expense replacement method is one effective way to determine the value. 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 coverage 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 coverage you require. Under this rule, you must 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 the amount might be insufficient, 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 of 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.