Term Insurance Plan vs Term Plan Calculator: How Much Cover Do You Need? 

Life is filled with sweet joys but also with surprises and twists. As we busy ourselves with our careers and children, raise our family, and dream of our future, we always wonder – what if I am not there to experience all of it? What if I am no more?

That’s where a term insurance plan comes into play! It is one of the easiest and cheapest ways to secure your family’s future.

But how much would your family require to maintain their lifestyle if you are not there? Would a wrong estimation lead to insufficient payout? Would a higher coverage affect your monthly budget?

Well, you need not worry since an online term plan calculator can do the job for you!

Let us explain everything you need to know in simple, easily understandable language. It’s time to explore the world of term insurance and learn how it can secure your family’s future.

What is a term insurance plan?

A term insurance plan is a contract where you pay an affordable premium amount to the insurance company and, in return, the company promises to pay a lump sum amount (also called life cover) to your nominee if you die within the term of the policy.

A term insurance plan differs from other types of insurance policies in numerous ways. Term insurance plans do not offer any investment component, unlike endowment plans or money back policies. They are very simple yet effective financial products meant to replace your income if something unfortunate happens to you.

Term insurance plans are the life jacket of your family. You wish you never needed it but are ever so happy to have it.

What is a term plan calculator?

An online term plan calculator is a free tool provided by most of the leading insurance companies. Rather than spending hours calculating the right amount of coverage for your family, all you have to do is enter a few details.

A term plan calculator estimates two things: the total life cover required for your family to live a comfortable life and the premium amount that you will have to pay monthly or yearly for the coverage.

Term Insurance Plan vs Term Plan Calculator – Key Differences

At times, people get confused between the two. While they seem similar, a term plan calculator and a term insurance calculator have different purposes. Let’s explore some of the key differences between the two to better understand how they work and impact your financial goals.

A term insurance plan is a financial product, whereas a term plan calculator is a tool to help you understand how much coverage you require. A term insurance calculator helps you estimate your life cover, whereas a term insurance plan provides financial security to your family.

A term insurance plan has to be purchased, whereas a term plan calculator is free. A term plan calculator is quick and easy to use and requires minimal information to operate.

Why Guessing Your Coverage Amount is Risky

Most people tend to pick a random number that sounds good to them, like ₹1 Crore, without considering their financial needs. It makes their life seem easy, but in reality, such decisions can have grave repercussions.

There are two major issues with an arbitrary choice – the first is undercoverage, and the second is overcoverage. Undercoverage means that the claim amount might get utilized to pay off your existing debts, leaving your family with nothing. On the other hand, overcoverage implies an extra premium amount, which could cause a strain on your monthly budget. A financial tool helps you to avoid such financial pitfalls by choosing the right amount of coverage – one that would not break your budget while securing the future of your family.

How much life cover do I need?

Though there is an online tool for all that, it never hurts to understand how the calculation works. We have discussed 3 common methods that experts use to determine an appropriate life cover.

Income Multiplier Rule

The income multiplier rule is the most common and simplest way of calculating life cover. The rule suggests that life cover should be roughly 10 to 15 times one’s income. For instance, if your income is 50,000 a year, your life cover should ideally be between 500,000 and 750,000. If you are under 35, choose a higher multipliYour Age er, say 15x or 20x income as you have many more working years to earn.

Human Life Value Method

The human life value method measures how much money you would have earned if you were alive till your retirement age. To calculate your life cover using this method, subtract your yearly expenses (say on personal clothing and hobbies) from your annual income and multiply it by the number of years left until retirement.

Needs-Based Method

The needs-based method is the most scientific way of estimating one’s life cover. In this method, one has to calculate one’s debts, the amount required to fund children’s higher education and marriage, apart from one’s living expenses for the next 15 to 20 years, and subtract one’s existing savings and investments from it. The resulting number would be the life cover required.

What factors affect your premium cost?

Your age, your smoking or drinking habits, your overall health, existing debts, policy term, and any add-ons are a few factors that influence your premium cost.

As you enter your personal and financial details on a term plan calculator, some key points determine your premium cost. Let’s discuss them briefly:

• Your Age- The younger you are, the lower your premium amount
• Your Health and Lifestyle – Do you smoke? Are you a healthy individual with no existing medical conditions? Such questions will have an impact on your premium.
• Policy Term – Till what age do you want the coverage? For instance, a policy covering you till age 65 would be cheaper than a policy that covers you till age 85.
• Add-ons – Certain add-ons or riders offered by the insurance companies might increase your premium amount.

How to use a term plan calculator?

Using a term plan calculator is simpler than you think! It takes hardly three minutes to operate it. First, you visit the website of an insurance company and enter your personal details. Then, you enter your financial details. Thereafter, select the coverage amount and the term that suits you best. Finally, the tool gives you a price quote, and you can modify your choices till you are satisfied.

Protecting your lifestyle for your family is a primary financial goal and should never be compromised. A term insurance plan ensures that your family has steady financial support even after your demise. A term plan calculator ensures that you pay a reasonable premium amount for an adequate life cover. You only have one life. Spend 5 minutes on your financial future and begin your journey to financial security by using a term calculator now.