Life insurance is a very affordable and ideal way to secure your family’s future in the event of your unfortunate demise. It offers a lump sum amount of money to your family and allows them to sustain a proper lifestyle in your absence.
There are numerous types of life insurance plans available for ranging purposes. Whether you’re looking to grow your wealth or gain life cover, you can always find life insurance for it. However, it’s not easy to choose a reliable life insurance policy.
While choosing a policy, you need to calculate the term insurance premium and assured sum by assessing your financial requirements. Knowing these parameters is also necessary to make sure that you can keep investing in the policy without any failure.
How To Calculate Term Insurance Assured Sum?
The assured sum is the amount of money guaranteed to be provided to your beneficiary in the event of your unfortunate demise. It is often referred to as death benefit or the coverage of your term life insurance policy.
To calculate the assured sum of your policy, you can use different ways. One of the most prominent ways is to use the Human Life Value (HLV) method. With this method, you can calculate the assured sum by assessing things like your current and future expenses, profession, and age.
By assessing these parameters, your capitalized value is calculated based on the present rate of inflation. There are term insurance calculators available online that allow you to determine your human life value and know about the assured sum.
How To Calculate Term Insurance Premium?
A term insurance premium is an expense, either recurring or single-time, that you need to pay to keep your policy active and gain its benefits. As long as you pay your premiums, your policy will be considered valid.
If you want to calculate the term insurance premium, then you need to consider several factors. Every insurance company includes an underwriting department that determines the required premiums for your policy.
Whenever you apply for a term insurance policy, then you need to go through the underwriting process. As a general rule of thumb, keep in mind that healthier and younger individuals have to pay lower premiums while older and people with health concerns have to pay high premiums.
Moreover, your term insurance can also vary based on things like whether you smoke or not, what kind of hobbies you have, what your profession is, and a lot more. There are even some policies that offer lesser premiums to women.
Things To Consider While Determining the Sum Assured
There are a certain number of things that one should keep in mind to choose a particular assured sum with your policy. This will help you to make the most out of your policy and enjoy better returns over time.
Calculate One-Time Expense
It’s important to calculate the one-time expenses of your family. Whether it is any kind of personal loan, mortgage debt, education loan, home loan, or even credit card payment, you must include everything that can be paid in a lump sum.
Calculate Your Assets
Along with one-time expenses, you also need to know the total worth of the assets available. Make sure you add the assets that your family wishes to offset with your liabilities. For instance, make sure you include fixed deposits, mutual funds, automobiles, provident funds, house, jewelry, gold, silver, land, and so on.
Deduct Liabilities from Assets
Subtract the liabilities from the assets to gain the value of net assets that are available for your family to use in the event of your unfortunate demise. In case the available liabilities are more than the assets, then make sure that the differentiating amount is added in the minimum sum assured.
Determine Your Annual Family Expenses
To ensure that your investments help your family meet their daily expenses, you must calculate the annual expenses of your family while choosing a preferred sum assured. Make sure to include things like education fees, electricity bills, grocery bills, and other utility expenses.
How To Choose the Right Sum Assured?
If you’re the only breadwinner of your family or have several dependents counting on you for their finances, then you need to make sure that your family sustains a proper lifestyle even in your absence. To make that happen, you must choose proper life insurance with an adequate sum assured.
If you keep the aforementioned things in mind, you can easily determine the financial requirements of your family and choose a desired assured sum value that helps your family live a financially secure life without having to depend on anyone.
Sum Assured Vs Sum Insured – What’s The Difference?
The sum assured is a value of the life cover as stated under the policy whereas the sum insured is a value used specifically for non-life insurance policies such as car or bike insurance. While the insured sum is calculated using your life’s economic value that might get higher with time, the sum insured usually decreases with time.
Moreover, the sum assured us received by your nominee in the event of your death and sum insured is offered as compensation for damage or loss. Keep in mind that there is no kind of maturity benefit offered in sum insured while various life insurances provide you maturity benefit after completing the tenure of your policy without missing any premiums.
While purchasing life insurance, it is necessary to make sure that you’ve assessed your financial requirements to make better decisions and make the most out of your policy. Among the various things to look for, the sum assured and premiums are the most crucial ones.
There are several ways in which you can calculate term insurance premium and sum assured. However, if you’re looking for a fairly straightforward approach, you may consider using a term insurance calculator instead.