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Ways To Calculate Coverage Of Your Life Insurance Policy

Published On Sep 22, 2021 4:00 PM By InsuranceDekho

You should take action to secure your family members' future economic situation. This is where the willingness to pursue an insurance policy becomes crucial. Life insurance serves as a safeguard for your family against financial risks, which can emerge as a consequence of your untimely death. Your loved ones can use life insurance to pay off mortgages, cover daily living costs, and achieve various goals in life.

Nevertheless, just purchasing life insurance policies is insufficient. The intent is to ensure that you have adequate life insurance coverage to meet your family's requirements.   

Life Insurance Coverage Calculator

A monthly or yearly premium for an insurance policy is calculated using a life insurance calculator or a term life insurance premium calculator. As a result, it assists you in determining the actual premium you will have to pay to get the optimal sum guaranteed. We'll focus on four strategies to determine how so much life insurance cover you'll require:

  • Human Life Value

The current value of your potential profits, expenditures, debts, and savings is calculated using the Human Life Value (HLV). The HLV figure is typically used to calculate the sum of money needed to protect the future of your beneficiaries through term life insurance whenever you were to pass away. When determining your HLV, you must consider seven factors. They  are:

  • Your occupation
  • Your age
  • Your employment benefits
  • Your gender
  • Your target retirement age
  • Your annual income
  • Your spouse's and child's fiscal records
  • Income Replacement Value

Using this process, you could be looking at a life insurance cover derived from the breadwinner's missed income post an untimely demise. It depends on the policy holder’s annual earned income and is a simple way of measuring one's life insurance coverage requirements.

Life Insurance Cover = current annual salary X years left until retirement. For example, if your annual income is INR 4 lakh, you are 30 years old, and you intend on retiring after three decades. The amount of life insurance needed is INR 12 crores (4,00,000*30) in such a scenario.

  • Underwriters Thumb Rule

According to this method, the minimum amount insured needs to be a multiple of annual revenue, based on age. For example, people in the age group of 20-30 must have life insurance coverage 25 times their yearly salary, whereas those who are 40-50 years old could go for life insurance coverage valued 10-15 times their yearly revenue. The insurance premium is charged annually. So, another important factor is one's willingness to afford the premium, year after year, before determining the scope for insurance cover.

  • Premium as Percentage Income

 As per this process, life insurance premium must equal 6 % of the breadwinner's yearly salary and a further 1% for every reliant. Let's assume the gross annual income was ₹5 lakh, and the client has a spouse and a toddler to look after. As per this process, the recommended premium would be  INR 40,000 (6*500000+1*500000*2).


Please note the above methods only indicate estimated values, and the final insurance premium size will depend upon the underwriting process your insurer has. When it comes to saving one's life, we tend to do all that we can. So, purchasing the appropriate life insurance policy rather seems like a convenient yet essential thing to prepare for what may come. However, one thing to keep in mind is that a life insurance policy changes with time, and you need to review your policy regularly.

Also Read: 

What is the Best Age to Buy a Term Insurance Plan? 

 How Much Term Insurance Cover Should One Buy?

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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