Use this tool to calculate amount of insurance policy. The objective of insurance policy is to support basic financial requirements for your family in the unfortunate event of death of earning family member. As a basic rule your insurance cover should be 6-10 times your annual income. According to personal finance experts you should not combine your insurance and investment needs. You can consider buying term plans rather than endowment plans.
Do you have any family member dependant on you?
How much annual income willl be sufficient to take care of family's basic financial needs.
Include all basic expenses like food, rent, travel, utilities. Also include cost for services taken care by you for free as of now like cleaning, laundry etc
Are you sole earning member in your family?
Steady Annual Income earned by other family members
Enter after tax income
How much you have saved/invested till date?
How much loan amount is still unpaid?
Does your family has any planned future expenses? (Like wedding, child education)
Enter cost you will need to incur as per today's rates
How we arrived at this number?
We have used following formula to calculate your insurance cover.
Insurance cover = Planned Expenses + Outstanding Loan – Investments + 10*(annual cost) – 10*(annual income). The rationale behind the calculation is, in case of death of earning member, family should be able to pay off all the debt and should be able to maintain basic lifestyle for around 10 years till the time family members can manage alternate source of income.
You should evaluate your insurance need frequently and adjust your cover. This will take care of inflation and any change of plans.