How to Calculate Right Life Insurance/Term Plan Cover Amount | Quick Guide |

One of the important decisions to make while buying Life insurance is the amount of Life cover required. Most people go by the simple thumb rule like 10 Times of your Annual Income. This may or may not give you an accurate picture. The ideal number would be the amount that can meet your family expenses for several years and pay off all your liabilities + loans in your absence.

You need to factor in your family yearly expenses in your absence, an inflation rate that might exist in the future, return of investment rate if your family gets a lump sum amount and they invest somewhere most probably Fixed deposits. The other important factor is your current liabilities, this might be your home loan or other personal loans. All these liabilities will get added to the insurance coverage amount. If you have existing assets or investments, subtract that from the total sum.

Below is a simple table on how to calculate this amount quickly.

Calculation of Life insurance Cover amount :

The above figures are for example purpose: Source JagoInvestor.com

Insurance Requirement Table (F)

Bonus tips :

• Don't over-analyze on the perfect number. All you need is a decent life cover which can deviate a little here and there. Don't delay because of this.
• You can opt for a Term Plan that provides the facility to increase the cover at different life stages like marriage, childbirth, etc.