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How To Calculate Term Insurance Needs Based On Your Affordability?

Calculate Term Insurance


Term life insurance or term policy is a protective gear that offers a fixed payout to the policyholder’s family in case there is the policyholder’s untimely death during the policy term. But while buying a term plan, people always wonder — how much term insurance one would need.

The answer should never be an arbitrary amount like 1 crore term insurance. The coverage amount should always be calculated.

It is estimated that coverage should be approximately 15 to 20 times your annual income based on affordability. With that said, the policy also has to be affordable. Similarly, there are many factors that help you determine your term policy purchase.

Various Methods of Calculating Term Insurance

  • HLV Method

The HLV method is the most commonly recommended method used by insurance companies based on which most companies have their calculators-

This method considers your income, expenses, future goals & responsibilities for determining your insurance needs. The method is trusted as it puts inflation into consideration.

  • Income replacement method

This method is simple with little consideration as it also suggests a very high coverage amount by considering future income, which may need to be corrected.

This method calculates life insurance coverage, assuming that money received from the insurance company, i.e., in the form of a payout, should be enough to replace the income of the family’s breadwinner. It suggests calculating the coverage by multiplying the annual income by the years left for retirement.

For example, if the current age is 40 and the person plans to retire at 60, the current annual income is ₹5,00,000.

Current annual income ₹5 lakh per annum
Current age 40
Retirement period left 60-40 = 20 years
Ideal sum assured should be Retirement period left x current annual income

= 20 x ₹5,00,000

So, for someone earning 5 lakhs per annum at the age of 40, 1 crore term insurance should be the ideal coverage if he wants to purchase the term plan for 20 years.

  • Expense replacement method-

The expense replacement method is a method that most financial planners recommend to calculate life insurance coverage.

This method takes the following aspects into consideration

  • Your household expenses
  • Loans and future financial goals such as your children’s education or supporting your parents

This gives you the total amount of money your family shall need in case of untimely demise. Then from this amount, you need to subtract your current investment & existing life insurance. Also, make sure when calculating your current investments don’t include any assets such as a house, car, or bike, as your family will be using them. The resulting amount shall be how much life insurance coverage you must provide for your family’s future expenses and financial goals.

How to Get an Affordable Term Insurance Plan

Once you have identified the most suitable method, you need to follow these tips to make your term life insurance affordable-

  • Review the claim settlement ratio-

Look for an insurer with a high claim settlement ratio, indicating the percentage of claims the insurer has paid for a financial year. If you are looking for one such name, then Tata AIA term insurance is a wise choice.

  • Get a term policy at an early age-

When you start your term insurance at an early age, you get benefits such as lower premium payment which remains fixed till the end of the term unless you wish to increase it at any stage of life. Further, you get higher coverage at an affordable rate with a more extended coverage period.

  • Compare your term insurance plan.

The last and essential step is to compare your term insurance plans based on your life cover calculated. Also, keep a complete understanding regarding benefits, the premium payable, and riders added. Always make sure you choose a plan that aligns with your needs.


Calculating term insurance coverage is not very difficult. Further, if you choose plans like Tata AIA term insurance, a team of insurance experts will guide you through. Just remember the key pointers we discussed in this article, and you will be able to get a good understanding of how much you need as your term policy coverage.

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