Ideal Duration to Consider when Opting for a Term Insurance Policy

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The uncertainties of life demand that each individual should consider buying a life insurance cover in order to ensure the financial security of their loved ones in the unfortunate event of your death. There are different types of life insurance policies but buying a term insurance policy makes sure that your family gets the entire sum assured in the circumstance of the policy holder’s demise. This life insurance plan comes at affordable premium rates and therefore is very popular among people earning a minimum salary. This policy satisfies the primary purpose of insurance, which is to offer protection, and hence if the policy holder’s main objective is to get security, then term insurance is their best bet. 

A term insurance plan is like an umbrella that protects you against the harsh rains and as a result, one must foresee the future before picking up a policy that best meets your requirements. The ideal duration of one’s term insurance policy must be the number of years you expect your family to depend upon you financially. 

What is a Term Insurance Policy? 

Term insurance plans are a life insurance product that offers a financial cover to the policy buyer for a pre-defined time period. In the event of the insured’s death during the term of the policy, the death benefit is paid by the insurance company to the beneficiaries of the policy.

The Benefits of a Term Insurance Policy

There is a reason this life insurance product is so popular. They are:

  1. They are extremely easy to understand
  2. They are very affordable
  3. As compared to traditional plans, they provide much better coverage
  4. They usually offer a host of tax benefits
  5. The premium rates are locked for the entire duration of the plan 

Why should one buy a term insurance policy at a young age?

It is advised by all that one should buy a term plan at an early age due to its many benefits. The primary benefit of buying this plan young is that it will come with low premium rates that will be locked in until the policy expires or until the end of the term. Buying the policy when you are old will incur higher premium charges due to one’s medical history and because insurers associate an element of risk with older folks. Another advantage is that the younger you are, the higher will be the term of your policy. Furthermore, the liabilities when we are young are certainly higher than they are when we are old. It, therefore, makes sense to start as early as possible so that the plan continues until all your dependencies are taken care of.

The importance of a term insurance policy duration:

There are a few important questions one needs to ask that will help with deciding the ideal term of one’s term insurance plan:

1.How long are you planning to continue to work?

2.At what age are you planning to retire?

3.Do you have any dependents?

4.Till what age will your kids be financially dependent on you?

5.Is your partner working?

6.For how long will your spouse continue to work?

7.When will you be free of your major liabilities in life? 

Giving careful consideration to the duration of your term insurance policy is vital in being able to enjoy its benefits. One should decide upon a term that is likely to offer protection to your family from any financial emergencies. As a result, most life insurance providers offer a term insurance cover up to a period of 40 years. The most ideal way of deciding upon your term plan duration is to foresee when are you most likely to retire. For example, if you are currently 30 years old and are planning to retire by the age of 60, it is ideal for you to opt for a term insurance cover of 30 years. 

The reason behind this is that this is the duration when you are most capable of achieving all your major financial goals. The assumption is that by the time one reaches his or her retirement, they would have already achieved their long term goals like buying a house, getting married, their child’s education, reduction of debts while also having accumulated a significant amount in their retirement corpus. Hence, most people ideally pick their optimum term insurance plan to reach its maturity by the time they are 65 to 85 years of age. On the basis of your age and comfort, you can arrive at the decision of your ideal term plan duration. 

Factors to keep in mind while deciding the term insurance policy duration

  • Affordability: Term plans with a longer maturity period tend to be a lot more expensive. Therefore, if the premium for a longer period is putting pressure on you financially, then you should consider adjusting the tenure as well as the amount of coverage you have opted for. This will help strike a balance between the premium cost and the benefits you receive from your term plan.
  • Liabilities: Another important factor that will play a huge role in deciding the term plan duration is the liabilities. If you have a pre-existing home loan or personal loan for a period of 20 years, then it is best to get a term insurance policy for the same or perhaps even longer duration to pay off your liabilities.
  • The extent of support offered: Your family can be another deciding factor of the duration to opt for the term plan. For instance, if you have a child who is 5 years old at the time of buying the term insurance and the goal is to provide coverage until his or her education is complete, then it is best to choose a duration of 18 to 20 years. If however, you want the coverage to be offered until their marriage, then the duration can be extended even further.
  • Financial support for dependents: Leaving your loved ones behind to struggle with finances after your death can be a scary thought. Leaving them with mountains of debt to pay off can be even scarier. If you have accumulated debts over a period of time and you want to ensure that your family isn’t left to repay them by themselves, then you would want to make sure that you opt for a term plan duration that covers your liabilities fully.
  • Your current age: Term insurance policies usually offer coverage for a duration of 15 years, 20 years, or 25 years, and more. If you are currently 35 years old, a 25 year term plan duration seems to be ideal for you. If you choose a term cover that ceases before your planned retirement age, then it defies the purpose of getting a term insurance policy. If you are 30 years old right now and plan to get retired by the time you are 45 years old, then the chances of you needing protection before the age of 45 are slim. Another thing to remember is that if you want to get a new plan by then, it will cost a fortune. Thus, picking a term plan with a longer duration is much wiser.

When is a short tenure term insurance policy preferable?

When someone is opting for term insurance at the age of 60 or above, then buying a term plan for 5 to 10 years seems optimal since one’s liabilities at this age are likely to have already been met and their children would be already financially dependent and no longer need their financial support.

A long term insurance plan means higher premiums. Therefore, it is not always wise to get a term insurance plan with a higher time duration. One needs to have a significant corpus saved up for your second innings after retirement for them as well as their significant other. 

In a Nutshell

Getting life insurance is an important decision in everyone’s life. Therefore, it is wise to carefully evaluate all options before deciding on one that takes care of you as well as your family by offering a financial safety net that supports when it is most needed!

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