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Life Insurance FAQs - What Should Be the Duration of My Term Plan?

Life Insurance FAQs - What Should Be the Duration of My Term Plan?
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Published: 14 Sep 2020 1:12 PM GMT

At a young age, you may not think about retirement life as something you need to plan for. As time passes and you begin to shoulder more responsibilities, you realise the quantum of having long-term financial stability, especially once you start a family. It is the time when you would begin to learn what life insurance is all about and its importance for your family.

A term plan is the purest form of life insurance that offers financial protection to your family in case something happens to you. In your absence, the life insurance policy would provide a substantial sum assured to your family to help them stay financially independent.

Most life insurance plans offer a variety of benefits that can be tailored to fit your specific needs. You can review different aspects of term life insurance such as the total life coverage and riders available. Also, it would help if you chose a term plan that offers long term financial protection, which is why you should opt for maximal tenure for your term plan.

You can use an online life insurance premium calculator to determine the premium payable based on the chosen sum assured and policy duration. A short policy tenure does not serve the real purpose of buying life insurance – protecting your family at all times. On the other hand, an extended period will cause premiums to rise.

To find out about what the duration of your term plan should be, here is what you need to consider:

  1. Your Current Age

Age is one of the most crucial parameters that determine not only life insurance premium but also the available choice of the policy tenure. For instance, a 25-year old individual can choose a policy period of 35 years (till the age of 60) for a term life insurance plan. As you age, the available policy tenure reduces accordingly. It is advisable to choose the term life cover till the age of 60 or 65 at least.

  1. Existing Financial Liabilities

Throughout your life, you borrow loans (personal or a home loan.) The last thing you would want for your family is a debt to pile up in them after you. You can make sure that your loved ones are financially secure by choosing the term plan duration that covers the liability duration for the debt.

For example, if you have borrowed a home loan of 15 years, the life insurance policy period must be at least 15 years. This way, your loved ones will find it easier to pay the debt through term insurance benefits in case something happens to you.

  1. Affordability

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Term life insurance plans bought for a longer time horizon tend to be expensive. Although opting for a life cover under a term plan is a form of investment, you also need to make sure it does not hamper your finances. After all, you need to pay the premium throughout the tenure on time to get insurance benefits.

If the premium of a term plan chosen for a specific duration is not suitable for you, adjust its tenure or sum assured to strike a balance between the two.

Why Should You Buy Term Life Insurance in Early Age?

Many people have the wrong notion that life insurance purchase can wait until a certain age. With time, your responsibilities also grow. You need to take care of your wife, kids, and parents, which requires financial strength and may cause further delay in buying a term plan.

Buying a term plan in early age gives you several benefits over the long run.

  1. Lower Cost

A term plan purchase at an early age is easy on the pocket. It means you can opt for a significant life cover at a low premium. You get this financial benefit because of the lower risk of untimely demise at a young age.

  1. Financial Protection for Dependents

If you started shouldering the responsibilities of your parents or siblings from a young age, you must have realised how significant your presence is to them. To ensure that they live happily and without financial chaos in their lives is your responsibility, which you can fulfil with a term life insurance.

  1. Tax Savings

Along with financial security to your loved ones, you get the benefit of saving tax right from an early age. The premium you pay for a term plan can help you save taxes under the purview of Income Tax Act. Moreover, the sum assured that your family would receive also tax-exempt.

Tips to Choose Life Insurance Policy Duration

Ideally, you should select a term plan duration based on your retirement age. Assuming that an individual has planned to live a retired life after the age of 65, he should choose life insurance duration as given below:

Age (in years)

Term Plan Duration (in years)

25

40

30

35

35

30

40

25

50

15

The right selection of term plan duration is based on individual needs and preferences. So, make sure you analyse your liabilities and current income before you purchase a term plan.

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