Usually, when you talk about the sum assured in term insurance, many financial advisors recommend you 20X or 25X your annual income, as a quick thumb rule. But, remember thumb rules take many averages into consideration, which may not be true for your specific needs. Each situation can be unique and everyone can have different financial goals. We, hence, recommend you scientifically customize your term insurance cover to your family’s financial needs.  

Why shouldn’t you depend on Thumb Rules? 

Thumb rules are thumb rules. These are standard formulas mostly for salesmen to oversimplify a calculation. If you calculate your term cover using some random thumb rule, the chances of it being able to fulfil your family’s financial needs are going to be random. Your case could be unique and hence there is no assurance that this term cover will be able to fulfil your family’s short-term and long-term financial needs. 

For instance, say Mr. Kumar has a declared income of only INR 10 Lakhs, but has a very high networth of say INR 4 Crores that covers most of his liabilities and even future financial goals for his family, and hence may probably not need a term insurance. On the other hand, as per the 25X thumb rule, a salesperson will suggest a cover of INR 2.50 Crores.

How to Scientifically Calculate your Life Cover Amount? 

You can arrive at a term insurance cover amount that will be appropriate for your family if you take into account the following four aspects - 

1. Short-term expenses to maintain lifestyle (basic needs, groceries, monthly expenses, etc.)
2. Long-term financial goals (huge responsibilities like children’s education or wedding)
3. Loans/ liabilities (home loan, education loan, etc.)
4. Money that you already have (savings, fixed deposits, etc multiplied by appropriate risk factors).

You can put all this onto a spreadsheet and simply calculate your term insurance needs.  You could also use term insurance calculators of available on various websites.

What is a Term Insurance Calculator? 

A term insurance calculator is a tool that you can use to find the most accurate sum assured based on your family’s needs. A term insurance calculator - 

• Is easy to use: A term insurance calculator will ask you a series of questions that won’t be too complex to understand. They will be simple and you won’t require any kind of financial knowledge to answer them.
• Gives you accurate results: A term insurance calculator will suggest an accurate amount that your family will require in your absence. With the help of scientific algorithms, the calculator will weigh in all your expenses, liabilities, needs, and existing funds along with their risk factors - and then recommend the cover you should buy.
• Saves time: Calculating the cover manually will require a lot of time and effort. And there are also chances of miscalculation. A term insurance calculator will save you both time and effort and calculate the term insurance cover that is right for your family within minutes. 

Let's find out how a term insurance cover calculator can help you, in the next few paragraphs. 

Benefits of using a Term Insurance Calculator 

Here are 3 ways a term insurance coverage calculator can help you and your family - 

1️⃣ Find the perfect cover to cover your loans

Let’s say you have taken a large loan like a home loan and before you are able to clear paying off the loan, you pass away. Now if you choose a cover based on the thumb rule of 20X your annual income - this loan amount might or might not be included in your calculation. 

After your death, the pressure to repay the loan shifts to your family, and if they were themselves financially dependent on you so far - they don’t have any means to pay this off.  If you don’t want your family to experience this burden, you must use a term insurance plan calculator that will help you tailor the cover amount including the loans and liabilities that you need to pay off. With this, you can help your family to clear off your existing loans but they can also continue living a comfortable life without making any compromises. 

2️⃣ Find the perfect cover to meet your family's long term goals and dreams

Every parent shares a common dream of giving their children the best life possible. For example- since the birth of your child, you’ve always had the dream of sending him/her abroad to get a better education and build a good career. 

But, how will these dreams come true, if you pass away? 

To achieve a personal goal like this, you will need to account for the high costs of education that your family will need to meet in your absence. And, there is no guarantee the thumb rule will provide a sufficient sum of money for your family to achieve such goals.  So it is better that you use a term insurance cover calculator and find a suitable cover - that pays enough for your family’s specific goals - and does not force your family to compromise on their personal dreams and goals.

3️⃣ Find the perfect cover to meet your family's day-to-day expenses

The day-to-day expenses could initially seem like a small amount, but they add up to form a very big monetary requirement in the long run. 

For example- Consider that your family’s sundry expenses are nearly Rs 50,000/- per month. This amount includes every member’s monthly needs, groceries, fees, entertainment, rent, etc. Over 20 to 25 years, you would need upwards of Rs 2 Crores to meet just the living expenses of your family (factoring in inflation). And, if you are the only earning member of your family or a joint contributor to expenses along with your spouse, what would happen if you suddenly pass away? 

This is when a carefully bought term insurance comes to the aid. A thumb-rule-based cover doesn’t consider your family’s specific needs so it may be awfully inadequate in your case. It is actually just a random figure that is convenient to promote to you. But, considering that term insurance is a long-term protection instrument - and something that will likely impact your family forever, it is important not to rush into this decision. 

You should use a term insurance cover calculator for your family such as Beshak Trumatch to get a customised term insurance cover amount. All you need to do is answer a couple of simple questions related to your current financial situation, your long-term plans, and your family’s goals. The Beshak TruMatch term insurance coverage calculator, will churn these inputs, and give you a scientifically calculated cover amount that fits your family’s needs best. 

You will receive a simple-to-understand PDF report based on which you can make the right decision for your family.