When it comes to protecting your future and securing the finances of your loved ones, life insurance is one of the preferred financial products available in the market. And term insurance plans, in particular, can be beneficial for people looking for affordable ways to secure their future. Wondering what term insurance is? And unsure of what the duration of your term policy should be?
This guide can help you out. Let’s first take a look at what term insurance is all about.
What is Term Insurance?
A term policy is essentially a kind of life insurance plan that offers a pure life cover. Here, the insurance service provider gives you a life cover for a specific period, which is the policy term, or the policy tenure chosen by you. In return for this life cover, you will have to pay the insurer premiums periodically (or as a one-time payment, if it is a single premium plan).
In case the life assured passes away during the duration of the plan, the insurer pays out death benefits to the nominee. This sum can help the surviving members of the family get through such uncertain times without much of a financial strain. Today, you can purchase term plans offline, or, if you’re more tech-savvy, you can opt for online term plans as well.
But before you purchase your term insurance plan, you need to make several important decisions about the life cover you are going to buy. And one of the key things to decide here is the duration of your term plan. How do you determine how long your life cover should last? Let’s find out.
How to determine the Duration of your Term Insurance Plan?
To find out what the duration of your term insurance plan should be, here are the key factors you should consider.
1. Your Age
Your age at the time of purchase plays a major role in determining the policy duration. If you are younger when you buy your term plan, you may want to opt for a longer duration, so you are covered until your retirement age, at the very least. On the other hand, if you purchase your term plan in your 30s or 40s, a comparatively shorter duration may be enough to cover you till retirement.
2. The Dependents you have
The kind of dependents also influences the ideal duration for term insurance plans. If there are people in your family who depend on you financially almost permanently, like your parents or your spouse, you have to ensure that the term plan is long enough to offer them protection for the foreseeable future. On the other hand, if you have dependents like children who are close to settling down themselves, you can choose your duration accordingly.
3. The Liabilities in your Name
Debt like car loans or home loans also need to be considered. Ideally, your term plan’s duration should be long enough to cover the period over which your liabilities will be repaid. That way, in case of something untoward happening, your dependents will have a financial safety net in place.
4. Your Life Goals (and your family’s)
A term insurance plan’s duration must be sufficient to help you and your family meet all the life goals as per plan. So, jot down your life goals like your children’s higher education, buying a home, or getting your children married. If it is going to take, say around 20 years to meet all these goals, your term plan should be sufficient to cover that period.
5. Your Remaining Working Life
While a whole life cover is the ultimate protection that you can put in place for your family, it is a good idea to ensure that you are at least covered for the rest of your working life. That way, your family will also be financially protected during that period. So, even in case of the insured incident happening, the loss of income will not affect your dependents significantly, thanks to the financial safety net you have in place.
So, there you have it. By keeping these points in mind, you can easily zero in on the optimal plan duration for your specific life goals and financial needs. Make sure that you factor these points in before you make your purchase.