Last Updated on Feb 21, 2024 by Harshit Singh
Life is full of uncertainties, and we can never be sure what the future holds. It’s a scary thought but one that we must confront head-on. That’s where term insurance comes in. It’s a type of insurance that provides financial protection for a specified period, but the question arises is – What’s the ideal policy duration for term insurance?
Is it better to opt for a shorter or longer policy duration? Should you choose a policy that lasts until retirement, or will a shorter policy suffice? These are just some questions that may come to mind when considering term insurance.
But don’t worry; in this blog, we’ll dive deep to help you understand what policy duration may best suit your needs. So, buckle up and get ready to learn all about term insurance policy duration!
Table of Contents
Ideal policy period for term insurance
A variety of factors, such as age, gender, sum assured, lifestyle, and policy period, impacts your term insurance premium. However, the length of your policy term is particularly important in determining your premium.
The policy term is the length of time that you want to provide financial protection for your loved ones in the event of unexpected circumstances. Most insurance companies offer policy terms that range from 5 yrs to 40 yrs or until the policyholder reaches the age of 99.
It’s recommended that you choose a policy term based on your retirement age. To help you decide how much coverage you need, consider your age and select an appropriate policy term.
If you are in your 20’s
When it comes to buying term insurance, your age and retirement goals are crucial factors to consider. If you’re currently in your 20s and plan to retire by age 60, a 35-40-yr term plan is recommended. This will provide coverage until your desired retirement age.
It’s important to plan ahead and invest in a term plan early on, as premiums tend to be lower when you’re younger. By doing so, you can ensure that you’re adequately covered while still being able to afford the premiums.
Therefore, it’s advisable to purchase a term insurance plan as soon as you begin working.
Here’s why you should buy a Term plan early
In your 30’s and 40’s
As you enter your 30s or 40s, you may get married and start a family. This means that you now have loved ones who depend on you financially, making it crucial to consider purchasing a term insurance plan.
At this point in your life, it’s advisable to choose a policy duration of up to 35-40 yrs, taking into account your financial requirements, retirement goals, and employment status. By doing so, you can ensure that your family is adequately protected in case of unexpected circumstances, providing you with peace of mind and financial security.
In your 50’s and 60’s
As you reach the age of 50-60, your children are likely to have settled down, and your financial responsibilities may decrease. This is an ideal time to consider purchasing a term insurance plan with a 15-yr term.
With fewer bills to pay and financial obligations, a shorter-term policy can still provide you with the necessary coverage at a more affordable premium. By selecting an appropriate term duration, you can ensure that you have the right level of protection for your changing circumstances, allowing you to enjoy your golden years with peace of mind.
How to choose an ideal term insurance policy period?
Let’s find out!!!
Choosing the right term insurance policy period requires careful consideration. Although your age plays a crucial role, it’s not the only factor to keep in mind. You must also consider your financial goals, liabilities, and lifestyle habits when selecting a policy duration.
Let us understand these factors in detail.
Financial goals
When it comes to financial goals, you’ll likely have several milestones to achieve throughout your life, such as getting married, having kids, saving for their education, and creating a retirement corpus.
Each of these milestones requires adequate financial protection, and a term plan can provide that. In case of any unfortunate event, the death benefit will help your family cope with the financial loss.
Liabilities
Liabilities such as home loans should also be considered when selecting a policy duration. A term insurance cover can pay off any unpaid amount, providing your family financial security in your absence.
However, you can safeguard your term insurance coverage from any liabilities like home loans, car loans, or outside creditors and ensure that the full sum assured goes to your family after your death. The solution is to use the MWP Act (Married Women’s Property Act) in term insurance, a powerful tool that can help protect your insurance coverage.
Lifestyle Habits
Lastly, your lifestyle habits can also impact the duration of your term plan. If you have habits such as tobacco or alcohol consumption, you may be at higher risk of critical illnesses. In such cases, a term plan with critical illness cover can help manage the cost of treatment, ensuring that you and your family are protected.
Is it worth it for everyone to go for a longer policy term period?
With so many insurance companies offering term plans with longer durations of coverage, it’s easy to feel overwhelmed and confused. There are two schools of thought when it comes to choosing the right term plan for you.
The first school of thought suggests getting the plan with the longest possible term, which currently goes up to age 85, to ensure your nominee receives a payout in the event of your death. However, the downside of this approach is that the average life expectancy in the country is only 71 yrs, so you might end up outliving the term and wasting the extra premium you paid for the longer coverage.
The second school of thought recommends getting coverage only for the duration of your active employment and financial liabilities. Typically, service-class employees retire at 60, and by that time, most of their major financial obligations, like children’s education, housing loans, and car loans, are likely to have been paid off. Hence, having coverage beyond this may not be necessary.
It’s important to choose the duration of your term plan based on when you accomplish your financial goals rather than opting for the maximum duration available. For example, if you’ve already funded your children’s education and marriage and accumulated your post-retirement corpus within 10 yrs, you only need a term plan for that period. By the time you retire, you should have achieved your important financial goals and accumulated enough corpus for post-retirement, making a term plan unnecessary beyond that point.
So in short
To figure out the right term for your life insurance policy, there are some important questions you should ask yourself. For example, when do you plan to retire? How long will your family depend on you financially? Are your parents reliant on you? Does your spouse work, and if so, for how long? How long will your children need your financial support, and if they’re teenagers, how long until they become financially independent?
Conclusion
Choosing the ideal policy duration for term insurance is a decision that requires careful consideration. It’s essential to think about your current financial situation, your future plans, and the needs of your loved ones. By choosing the right policy duration, you can provide financial security to your family in case of your untimely demise.
Remember, life is unpredictable, and we can’t foresee what’s going to happen in the future. But with term insurance, we can prepare ourselves for the unexpected and secure the financial future of our loved ones. Whether you opt for a shorter or longer policy duration, make sure you understand the terms and conditions of the policy and choose a reliable insurance provider.
So, take the time to assess your needs, evaluate your options, and make an informed decision about the ideal policy duration for your term insurance. It’s a small step that can make a significant difference in the lives of those you love and provide you with the peace of mind that you deserve.
Do your research, read the fine print, and ask questions.
Or..
Talk to our insurance experts at Ditto for a piece of personalised consultation for your use case.
FAQs
Can the policy period for term insurance be extended?
In some cases, the policy period for term insurance can be extended. However, this may come with higher premiums and other fees. It is important to check with your insurance provider to understand the terms and conditions of extending your policy period.
Can I renew my term insurance policy after the policy period ends?
In some cases, you may be able to renew your term insurance policy after the policy period ends. However, this may come with higher premiums and underwriting requirements. It is important to check with your insurance provider to understand the options available to you.
What is a rider in a term insurance policy?
A rider is an additional coverage option that can be added to a term insurance policy for an additional premium. Riders can provide additional benefits such as accidental death coverage or disability coverage.
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