How to calculate required sum assured and investment?

Calculating the investment amount in an endowment life insurance plan involves determining the premium you need to pay regularly to reach your desired sum assured at the end of the policy term. The premium amount is influenced by several factors, including the sum assured, policy term, your age, health, and the specific terms of the policy. Here’s a step-by-step approach to calculating the investment amount:

1. Determine the Sum Assured

The sum assured is the amount you want your beneficiaries to receive in case of your death during the policy term or the amount you want to receive upon maturity.

2. Choose the Policy Term

Decide on the duration of the policy. This could be any number of years, often ranging from 10 to 30 years.

3. Evaluate Your Age and Health

Your age and health status significantly affect the premium amount. Younger and healthier individuals typically pay lower premiums.

4. Select Additional Riders (if any)

Riders like critical illness cover, accidental death benefit, or waiver of premium can be added to the basic policy for enhanced protection, which will increase the premium amount.

5. Use a Premium Calculator

Most insurance companies provide online premium calculators where you can input the sum assured, policy term, age, and other relevant details to get an estimate of the premium amount. Alternatively, you can contact an insurance advisor for a detailed calculation.

6. Understand the Premium Structure

Premiums can be paid in various modes:

• Regular Premium: Paid annually, semi-annually, quarterly, or monthly.

• Single Premium: Paid once at the start of the policy.

7. Calculate the Premium Amount

Here’s a simplified example to illustrate how to calculate the investment amount:

Example:

• Sum Assured: Rs. 10,00,000

• Policy Term: 20 years

• Age: 30 years

• Health: Good

• Additional Riders: None

8. Consider Bonuses and Benefits

Some endowment plans offer bonuses, which can be reversionary (added to the sum assured during the policy term) or terminal (paid at the end of the policy term). These can enhance the maturity amount but might slightly affect the premium calculation.

9. Factor in Inflation

Adjust your sum assured to account for inflation over the policy term to ensure the maturity amount meets your future financial needs.

Detailed Example Calculation:

Premium Calculation Formula:

The exact premium calculation involves actuarial formulas, but for simplicity, consider the following basic example:

1. Base Premium Calculation:

   • Base Premium Rate: Rs. 3.5 per Rs. 1,000 of sum assured (hypothetical rate)

   • Sum Assured: Rs. 10,00,000

   • Annual Base Premium: frac{10,00,000}{1,000} times 3.5 = Rs. 3,500

2. Add Loading for Age and Health:

   • Age and Health Loading: Rs. 100 (hypothetical additional cost)

3. Total Annual Premium:

   • Total Annual Premium: Rs. 3,500 (base) + Rs. 100 (loading) = Rs. 3,600

Conclusion

The investment amount (premium) you need to pay for an endowment life insurance plan depends on the sum assured, policy term, your age, health, and any additional riders. Using an online premium calculator or consulting with an insurance advisor can provide you with a precise premium amount.