How to Use a Term Insurance Calculator to Determine the Ideal Coverage Duration?

The economy is a fickle component in today’s world. You must prepare for the worst-case scenario to protect yourself and your loved ones against financial turmoil. Term insurance plans are a suitable means of securing the future financial condition of your loved ones in the event of your demise. It is also a reasonable and affordable solution that doesn’t drain your bank account.

There are many aspects to purchasing the right term insurance plan and coverage. Let’s take a closer look at how you can simplify the plan and duration using simple tools.

What is term insurance?

Term insurance is a form of life insurance policy that is affordable and comes with higher coverage. Term insurance plans are flexible policies that you can purchase for 10-100 years with a sum assured ranging from INR 25 lakhs to 10+ crores.

These plans are available for very affordable premium rates as compared to traditional life insurance plans. Term insurance is also available in various forms to serve different purposes, such as increasing term insurance, decreasing term insurance, term insurance with return of premium, etc. You can select the best type of policy for you with adequate coverage for a specified period of time based on your needs and a quick assessment using a term insurance calculator.

What is a term insurance calculator?

A term insurance calculator is an online gadget that is available on the insurance provider’s website. It is a tool that assesses the requirements of your term insurance plan and helps determine a suitable payment plan to avail of maximum benefits at reasonable costs.

You will need to share the following preferences in a term insurance calculator:

1. Your desired coverage, i.e., the total sum assured with which you want to secure your beneficiaries’ future.
2. The policy tenure, i.e., the duration during which the policy will be active. Your beneficiaries are entitled to the sum assured as the death benefit if you pass away during this duration.
3. The premium paying tenure, i.e., the duration during which you will be making regular premium payments. This duration can be shorter than the policy tenure.
4. The premium paying frequency, i.e., how often you want to make premium payments. You can choose monthly, annual, or single lump sum premium options.
5. The mode of payout, i.e., if you want your beneficiaries to receive the payment in a single lump sum amount or monthly instalments.

You will also need to share some personal information, including your name, contact details, smoking habits, area of residence, education, and occupation. Based on these personal criteria, the term insurance calculator will share a list of available plans from which you can choose the most suitable one for you. Following that, you can choose the coverage, tenure, etc. and make adjustments for a reasonable plan.

How to use a term insurance calculator to determine the ideal coverage duration?

The term insurance calculator takes into account your financial situation as well as the desired results. If the assessment determines a premium that is too high, you can always make adjustments to derive a more suitable plan.

Let’s assume you purchase 1 crore term insurance for 10 years. When you feed the terms of the 1 crore term insurance, the calculator will determine the premium based on frequency, duration of payment, and total sum assured. The total premium that you need to pay is adequately divided by the premium paying duration and frequency.

Assuming that the monthly premium for the 1 crore term insurance plan seems high, you can adjust the other parameters as follows:

1. You could increase the tenure of the 1 crore term insurance policy from 10 to perhaps 25 years. In any case, the death benefit will be paid if your unfortunate demise takes place during the policy tenure.
2. You could increase the payment duration, i.e., the number of years for which you need to make regular payments. That way, the premiums will be divided into more years, which would reduce your monthly stress.
3. You could also change the premium paying frequency from annually to monthly, so the stress is lower.

The term insurance calculator will adjust your regular premium amount as per your specifications. Ideally, you can use it to increase the coverage duration, which consequently reduces your stress of regular premium payments.

We used a 1 crore term insurance in the example above to understand the concept. However, if your desired coverage is higher or lower, that will also impact the premium rate. You can adjust the policy tenure accordingly to derive a more reasonable premium rate for you based on your coverage and the tenure for which you can extend the policy.

Since the term insurance calculator spits out accurate figures, you can use it to lower your premium or determine if you want to increase or decrease the coverage for your beneficiaries.