A life insurance calculator is a handy online financial instrument that assists when you need to choose the right kind of policy for the benefit of your family. The choices can seem daunting, especially when trying to decide between term plans, ULIPs, Endowment plans, and the different types under each category. Let’s simplify the process by understanding what is term insurance and how you can maximise your coverage with a suitable life insurance policy.
What is term insurance?
Term insurance is a form of life insurance plan. It is the purest form of the policy that provides all the basic benefits that you may expect from a life insurance plan. The common terminologies on term insurance are as follows:
- Sum assured – The amount of money that will be the coverage that your beneficiaries receive in the event of your unfortunate demise during the policy tenure.
- Policy tenure – The duration of the life insurance policy, i.e., the number of years for which you want the policy to be valid.
- Premium paying tenure – The duration of the policy during which you will be making regular premium payments.
- Policy type – The variant of life insurance policy with which you wish to secure the financial future of your loved ones.
- Premium frequency – The regular intervals at which you wish to make premium payments. You can choose a single lump sum premium or divide it monthly or annually.
- Riders – The add-ons that you wish to include in your life insurance policy to maximise the benefits.
Understanding these terminologies goes a long way toward determining what is term insurance and the best plans that benefit you.
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Types of term insurance plans
There are different types of term insurance policies available such as:
- Increasing term plan – One where the sum assured increases annually by a predetermined percentage.
- Decreasing term plan – One where the sum assured is reduced annually and the difference is used to settle liabilities.
- Single premium term plan – One where you pay a single, lump sum amount to secure your family’s future with a term insurance plan.
- Level term plan – One where the variables remain constant throughout the tenure of the policy.
- Return of premium term plan – One where if you survive the tenure of the policy, the insurance provider returns all the premiums that you paid over the years upon maturity.
Once you choose the type of policy that you want to purchase to secure the future of those you love, you can use a life insurance calculator. The tool makes the process much simpler to maximise coverage by considering the variables that affect your sum assured over the long term.
Using a term insurance calculator to choose the best policy
When using a life insurance calculator, you must first share some personal details such as your age and gender, area code, and of course, your name and contact information. You will also need to notify the life insurance calculator about your smoking habits and any type of consumption of nicotine or tobacco. Based on these primary variables, the life insurance calculator will present you with several viable policy types.
When you understand what is term insurance, picking the policy type is easy. You just need to consider the benefits of the plan to identify the one that best aligns with your financial goals.
Upon selecting the type of policy, you can further use the life insurance calculator to optimise the coverage. You will need to choose your preferred sum assured and policy tenure. You need to determine the frequency and duration of paying premiums, and lastly, you will need to choose if your beneficiaries should receive a lump sum death benefit or monthly or yearly income. Based on your preferences, the life insurance calculator will determine the premium that you need to pay to obtain the full benefits of the policy.
Now, here’s where you can use the calculator to your advantage and maximise your coverage. If the premium displayed upon careful consideration of the variables you provided is way too low, then you can modify your selections. If you are already sure about the frequency and duration of premium payments and the policy tenure, then the variable that matters most is the sum assured. You can increase the amount and check again till you reach a rate of premium that seems comfortable with larger coverage.
Another way to maximise your coverage with the life insurance calculator is to modify the details of paying the premium, i.e., the duration and frequency. You can select the maximum coverage that you wish to provide for your family. Then, you will need to increase the duration and frequency with each you make premium payments. The calculator will help you determine the rate of premium which should be comfortable to pay without overbearing your finances.
Lastly, you can include add-ons or riders to the policy to increase the coverage. Most critical illness riders and accidental death benefits add a certain sum of money to the sum assured, thus increasing the overall coverage.
Conclusion
Understanding what is term insurance and using the variables of the policy can help you maximise your coverage. The life insurance calculator provides instant results so you can compare policy terms and make an informed decision.
