How to Calculate the Sum Assured & Premium of Insurance?

Life insurance is a reliable way to secure the financial future of your family. In case of your demise, your family will receive the death benefit which they can use for managing their expenses. While there are now many different types of life insurance plans available for every need, calculation of sum assured and premium remains constant in every policy.How much sum assured do you need? How will the premium be calculated for your selected sum assured? Let us have a look-

The sum assured is the guaranteed amount that the beneficiary of your life insurance policy will receive in case of your death. The sum assured is also known as the coverage or the cover of your insurance policy.

There are many different ways to calculate the sum assured for your life insurance policy. One of the most popular methods is Human Life Value or HLV. This method calculates sum assured based on your current and future expenses, present and future earnings, and age.It helps you calculate your capitalized value based on current inflation. You can now find Human Life Value calculators online to know your HLV and select the right sum assured.

The premium of a life insurance policy is a one-time or recurring expense which you pay for the policy. Your policy will only be valid until you pay the premiums as per the guidelines of the insurance provider.Most insurance providers allow you to select the premium payment frequency from monthly, quarterly, half-yearly, yearly payments, or one-time payment.

The premium calculation depends on several factors. The insurance companies have an underwriting department which calculates the premiums. Every individual applying for a life insurance policy is required to go through this underwriting process.Generally, younger and healthier individuals are required to pay a lower premium as compared to someone in their 40s or 50s. Smokers and non-smokers are also quoted different premiums as smokers are considered riskier.

Some of the most important factors that affect your life insurance premiums are-

• Type of plan
• Sum assured
• Your age
• Policy tenure
• Riders (if selected)
• Current health condition
• Smoker/non-smoker

Add Up One Time Expenses

You must compute the family’s one-time expenses. These expenses can be outstanding debts, mortgages, personal loans , home loans , education loans, credit card payments that can be paid in lump sum.

Additional Of All The Assets

Next step is to calculate that total value if your assets. Remember you add assets that your family is willing to offset with lumpsum liability amount. These can be stocks , mutual funds , fixed deposits , provident funds, automobile. Also, property like house, land, gold/ silver bars, high-valued jewellery, etc.

Deduct Liabilities From Assets

Deduct the liabilities from the assets and you will get the net assets available for your family required to face financial crunch if any to pay for funeral charges, accumulated rent charges, etc.

Deduct Assets From Liabilities

If the liabilities as more than the assets available then you must consider that much amount of difference as the minimum sum assured so that there are no financial obligations on your family to tackle after you.

Calculate Annual Family Expenses

This is very crucial. To make sure that all the financial needs of your family are met after you, it is important to calculate the annual expenses of your family while calculating sum assured. This includes grocery bills, electricity bills, school and collage fees, other utility bills that needs to be paid monthly and multiply all by 12 to get the net annual expense.

Decide Number Of Years You Need To Provide Protection For

While deciding sum assured for a life insurance policy, you must consider the number of years for which you aim to provide you family with protection. Multiply your family’s annual expenses to that number and then add that to the net liabilities t o get approximate sum assured.If you feel that the decided sum assured won’t be sufficient then you can raise the sum assured. Though for that you must be ready pay the higher premium amounts.

To make the right decision, it is first essential to understand the product in detail, especially if it is something as important as life insurance. Now that you know how the sum assured and premium is calculated, go ahead and compare the policies to make a smart decision.

If you have dependants in family or if you are a breadwinner at your home, then it your sole responsibility to make sure that your family stays financially strong even after you. And for this choosing a life insurance plan with right sum assured is very important. Make sure you consider all the factors like the annual family expenses, inflation, premium rates, etc while selecting the sum assured amount