Investment School: How to calculate your insurance cover?

How to calculate your insurance cover?

There are well known methods to arrive at a ideal insurance cover for an indiviual.These further explains the significance of term insurance

Income Replacement Value

1. Age = 40

Annual Income = 5,00,000

Retirement Age = 60

Insurance Cover needed = (60-40) * 5,00,000 = 1 crore

Another variation, is to mutiply the income with a mutiplier to calculate your life cover.The multiplier differs across various age groups

20-30 years = 5-10 times annual income
30-40 years = 15-20 times annual income
40-50 years = 10-15 times annual income
50-60 years = 5-10 times annual income

So when you fit into any of this category and calculate your insurance cover it would be amounting to a significant sum.

When going for a typical endowment policy for such a insurance sum(eg 1 crore for 40 years old earning 5 lacs annually) , the premium would shoot to very high levels.

Term insurance 's cost benefit will be best exploited in these scenarios.

Always keep Insurance and Investment seperate.

Related Topics

What is term insurance?

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