Term insurance is an important financial protection tool for individuals and households with financial dependents. Growing uncertainties, lifestyle-related health risks, and other concerns have increased awareness about the need for term insurance plans to safeguard families from the financial impact of an unfortunate event during the earning years.
However, when you venture to buy term insurance, you will find the sum assured estimates differing across multiple term insurance calculators. What is the reason behind this? That’s what we aim to uncover below.
Why Term Insurance Calculators Show Varying Sum Assured Figures
When you use a term insurance calculator from multiple platforms, the sum assured estimate often varies due to several factors. Some of them include:
Method of calculation – Different calculators use different approaches to arrive at a suggested coverage amount. For example, some calculators follow a Human Life Value (HLV) or needs-based approach, factoring in current and future expenses, income, age, liabilities, assets, and assumed inflation rates. At the same time, simpler calculators may recommend a sum assured based on an income multiple, which can range widely depending on age and other assumptions. The multiplier used may differ from one calculator to another.
Customisation factors and input variables – Basic calculators may only ask for limited inputs such as age and income, while others require more detailed information. These may include the number of dependents, existing liabilities and assets, and financial goals. Certain personal factors, such as smoking status or occupation, are more commonly used to determine eligibility or premium rates rather than the ideal sum assured, but they may still appear in insurer-linked calculator journeys.
Inflation and investment return assumptions – Calculators rely on assumptions about future inflation and expected investment returns. Since these assumptions vary across platforms and are often not disclosed in detail, they can significantly impact the final sum assured estimate.
Underwriting limits and insurer guidelines – In calculators that are directly linked to insurer quotation systems, internal underwriting guidelines may influence the maximum or recommended coverage amounts. These limits vary across insurers based on risk assessment models and internal policies, which can lead to differences in displayed estimates.
Conclusion
While it can be helpful to use multiple methods to determine how much coverage you need, there is likely going to be a variance between methods because of the calculation method used, assumptions about inflation and returns made, insurer limitations based on eligibility, and the way input is weighed and used from each method. Your own individual circumstances (income, age, liabilities, number of dependents, long-term financial goals) also play a significant role in understanding what those figures mean.
It is very important to evaluate how much coverage you may require in different ways and understand what those variances represent. The information from any of the term insurance calculators should be treated as only a guideline and not an absolute. If necessary, you may wish to consider using an insurance professional who can offer guidance on determining the proper amount of coverage that is required for your family to be covered during the life of the policy without being underinsured by only using one calculator’s projection.