Term Insurance Plans by Duration

Ashutosh is a 33-year old guy who lives with a family of three (himself, his wife, and his 6-month-old baby) in Pune. Ashutosh works in the accounts department of a private company and earns a decent salary. After the birth of his child, Ashutosh has planned to review his life insurance needs. To cope up with his added responsibilities, Ashutosh wanted to enhance the sum assured and term of the policy. He has been approached by an agent who advised him of a term plan that will cover him till the age of 80. There are also other options between 50 and 70 years of age. Ashutosh was confused, and he couldn’t decide what policy duration he should opt for? He thought to choose the longest possible duration as purchasing a term plan could be very expensive and challenging when he grows older.

The duration of Ashutosh’s term plan entirely depends on when Ashutosh can accomplish all his prime financial goals and objectives. For example, if he can achieve his financial goal in 10 years, he may only require a term plan for 10 years. So, here we are going to discuss the duration of your term plan to help people like Ashutosh choose the right time duration for their term plans.

Term insurance is a simple life insurance plan that offers you a pure life cover. Here, the insurer will give you a life cover for a specific period (policy term or tenure period) chosen by you. For this life cover, you need to pay premiums to the insurer. If the insured policyholder expires during the policy term, the insurance company will give death benefits to the beneficiary. This sum assured amount will help the surviving family members manage their financial expenses during this difficult period.

Before purchasing a term plan, you should consider certain parameters. And one of the key parameters is the duration of your term insurance plan. So how to choose the duration of your term plan?

To decide the duration of your term plan, you should consider certain key factors.

6 Key factors to consider while deciding the duration of your term plan

  1. Your Age
  2. The Dependents you have
  3. Your Liabilities 
  4. Your and Your family’s financial goal
  5. Your remaining working life
  6. Affordability

 

1. Your Age

Your age (at the time of purchase) plays a crucial role in deciding the time duration of your term plan. If you want to purchase a term plan at a younger age, you can opt for a longer duration. This will help you to stay covered until your retirement age. But if you buy a term plan in your 30s or 40s, then you should go for a shorter duration because this time duration will be sufficient to cover you until your retirement.

2. The Dependents you have

The dependents also influence the duration of your term insurance plans. For example, suppose your parents or spouse depend on you financially. In that case, you have to ensure that the term plan is long enough to offer them protection against any unforeseen incident. But if your dependents like children who are approaching to settle down themselves, then you may choose the time period accordingly.

3. Your Liabilities 

If you have taken any car loans or home loans or any other loans, you should consider those while choosing the duration of your term plan. Generally, your term plan’s duration should be long enough to cover the period over which your liabilities will be repaid. If you need to pay off your debts, your term insurance cover should equal the outstanding loan amount, and the tenure period equals the balance EMI duration. In the case of your sudden demise, your family won’t face any financial encumbrance by the loan. The sum assured amount will help them to get rid of the liabilities.

4. Your and Your family’s financial goal

The duration of your term plan should be adequate to help you and your family meet their financial goals according to the plan. So, just write down all your life goals, including your children’s higher education, purchasing a home, getting your children married, and many more. If you think you can achieve these entire goals within 20 years, then your purchased term plan should be adequate to cover that period.

5. Your remaining working life

By opting for a term insurance plan, you can assure that you are at least covered for the rest of your working life. In addition, your family will also be financially secured during this period. So, if the policyholder expires in an unfortunate incident, the dependent family members won’t be affected because of the loss of income. And the credit goes to your term insurance plan for this financial security.

6. Affordability

Affordability is another imperative parameter while deciding the duration of your term plan. The longer the tenure, the lower the premium will be. Evaluating your current savings and cash flow, you should decide the premium amount for your selected duration.

According to the rule of thumb, choose the maximum tenure period available for your age and lifestyle. So, for example, if you are a 30-year old guy and need life insurance just for the next 30 years, you may choose for a 40-year tenure. This is because the financial condition will not remain the same for all the phases of life. But if your age is 60 and you want insurance for the next 10 years, then you might not get it. But you can discontinue your plan at this age without any consequences.

These are the key parameters that you should consider while deciding the time duration for your term plan. Then, choose the right tenure period based on your financial needs and goals.

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