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Calculate And Gauge The Right Cover For Your Family

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August 10, 2023

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Securing your family's financial well-being is a primary responsibility, and having adequate insurance coverage is critical to attaining that objective. Calculating and assessing the proper coverage for your family is essential to ensuring their safety and providing peace of mind. Let us discuss the significance of selecting the appropriate insurance coverage and walk you through various methodologies for calculating the right insurance coverage for you. By knowing the elements at play and making informed selections, you may choose the best insurance coverage to protect your loved ones' future and offer a solid financial foundation.

How to calculate how much term insurance coverage I need?

To calculate the amount of term insurance coverage you need, consider using the HDFC Life Term Insurance Calculator. Based on the information you provide, the HDFC Life Term Insurance Calculator will recommend a coverage amount. It will take into account your financial obligations, income replacement needs, outstanding liabilities, living expenses, and long-term objectives.

4 Methods to calculate the adequate insurance coverage you need:

Human Life Value (HLV)

This method considers a person's economic or human life value (HLV) to the family. The concept focuses on the worth of future income, expenses, liabilities, and investments. Keep in mind that each insurance company calculates this amount differently. The amount of Human Life Value is bound to vary depending on the insurer you choose. However, the most important constants are your age, gender, retirement age, annual income, and even your current savings.

Income Replacement Method

The Income Replacement method focuses on determining the amount of insurance coverage required to replace the insured individual's income in the event of their death. The primary focus is now on efforts to replace the deceased breadwinner's overall financial income. One of the simplest ways to calculate the income replacement value is to multiply the current annual income by the number of years until retirement.

Expense Replacement Method

The Expense Replacement method focuses on estimating the insurance coverage needed to replace specific expenses in the event of the insured individual's death. This method identifies and quantifies financial obligations such as mortgage payments, education costs, healthcare costs, and other living expenses. To obtain the appropriate life insurance coverage for the future, you must deduct your investments and existing assets.

Underwriter’s Rule

The Underwriter's Rule is a rule that insurance underwriters use to determine the appropriate insurance coverage based on a multiple of the individual's income. You can use the common thumb rule of having a sum assured that is 10 times your annual income to calculate the minimum cover you require. So, if your current annual income is INR 10 lakhs, you should have at least INR 1 crore in life insurance.

Conclusion

You are taking an important step towards protecting your family's financial future by taking the time to accurately calculate and gauge your term insurance coverage. You can have peace of mind knowing that your loved ones will be financially secure in the event of an unfortunate circumstance if you have the right coverage in place. Start planning now and prioritise the financial well-being of those who are most important to you.

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ARN: ED/07/23/3391

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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