How Much Term Life Insurance Do You Need? (2024)

How to Get Adequate Term Insurance Coverage?

Calculating your Term Plan Coverage

• Human Life Value (HLV)Using the Human Life Value method, you can understand an individual’s economic and financial worth. You can know the value of their future income, earnings, and investments after all the future expenses and liabilities have been deducted. This figure will represent how much financial support you can create for your dependents or family members to utilise in your absence. It is popularly used to calculate term insurance coverage as your family will need to have an adequate sum assured in case of your untimely death during the policy term.
• Analysis of Needs
  
  Under this method, the term insurance coverage is calculated by considering each and every family member’s total expense. This will also include any future costs and expenses, such as the birth of a child or the future education expenses of a young child. You will need to consider everything from the present-day expenses to the expenses going up to the life expectancy of the youngest family member. This is what your analysis of needs calculation should include:
  • How many family members are there, and what are their requirements?
  • Do you have any liabilities, such as loan EMIs or debts to be repaid?
  • What are the education and marriage expenses for the children?
  • How will your family continue to maintain their standard of living?
  • Should there be an emergency fund for the family?
  
  After calculating a total amount based on the above questions, deduct your investments and assets from the total, and you can know the term insurance coverage you need.
• Income Replacement Value
  
  This is one of the simpler methods by which you can calculate term insurance coverage. Here you can calculate your annual income and the number of years until you retire from your profession.
• Underwriter’s Thumb Rule
  
  The underwriter’s thumb rule will give you an estimate of the term insurance coverage needed for your family. With the help of multiples of your annualised income, you can arrive at a number that will be the sum assured of your term plan. For instance, if you are between 30 to 40 years of age, your term plan coverage should be 25 times your annual income.

Conclusion

Many people purchase term insurance plans only for investment purposes and tax*-saving benefits which is why, quite often, the amount of term insurance coverage they calculate is not enough for their families. To avoid this, it is necessary to realise the importance of term insurance in the lives of your dependents and how it can protect them in your absence.

L&C/Advt/2022/Nov/2939

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