Term Insurance Till What Age: How To Pick The Right Policy Period?

What is term insurance?

Term insurance is a life insurance plan where the policyholder is provided life cover for a predetermined duration or specific number of years. As a simple and cost-effective form of life insurance, term insurance provides death benefit to the nominee in case of the life assured’s death.

With term insurance, the insured can avail a higher sum assured even while paying lower premium and ensure financial protection to his family in times of need. A term insurance ensures that your family meets their life goals irrespective of the circumstances and even in your absence.

Many people in our country are not adequately insured as they don’t give much importance to term insurance. Even when they buy term insurance, they don’t give much thought to the amount of sum assured or the policy term, which are important factors.

Some people still wonder and ask, "What is term insurance?" and many customers are not aware up to what age they should have term insurance protection. We have already replied to the question “What is term insurance?” above and now let’s find the answer to another important question: “What is the ideal term insurance policy period for me?”

What does the term insurance policy period mean?

A term life insurance plan is called such because it is for a specified number of years, which is known as the policy term. When you buy term insurance, you must be careful about factors such as your age and tenure of the policy because it has a direct bearing on your premium. But most importantly, choosing the right term insurance policy period ensures that your family is adequately protected and never without financial protection to meet their life goals. The importance of picking the right policy term can be understood with this simple example.

Rajiv Bhatia was a software engineer and he bought a term insurance policy with a term of 15 years when his age was 35 years. His term insurance terminated when he reached 50 years of age. However, he didn’t give much importance to buying a new term insurance policy. Unfortunately, he passed away when he was 51 years old and his family was left without any form of savings that could be liquidated and hence leaving them with no cushion for any financial protection. Rajiv could have avoided this problem if he had purchased a term life insurance that could have provided him a life cover (up to the age of 99 years) by paying the policy premium for chosen term, in line with the product terms and conditions.

Difference between policy term and premium payment term

Many people get confused between policy term and premium payment term when it comes to their term insurance plan. It’s important to distinguish between the two.

1. Policy term is the duration for which you are covered under the term insurance policy.

2. Premium payment term is the number of years you will pay premium to get term life insurance protection.

The policy term and premium payment term may not necessarily be the same. For example, there are term insurance plans where you pay the policy premium for only 15 years and get coverage for 30 years. This depends on the product’s terms and conditions

What is the ideal term plan policy period for you?

Finding the ideal policy term is one of the trickiest parts of buying term insurance. If the policy term is too short, you are putting your family’s future at risk. On the other hand, if the tenure is too long, you will be paying premiums in excess just for the sake of extended coverage without any real term insurance benefits.

So, what is the ideal term plan policy period for you? Here are a few easy tips to find out.

These four factors should help you determine the ideal policy term.

1. Your age

When you are young in your 20s, you may not have heavy financial responsibilities to shoulder but this is the right time to buy term insurance that covers you until retirement. You should ideally opt for a term plan policy period, which at least covers you till your retirement.

2. Liabilities & no. of dependents

As you age, liabilities such as home loan, car loan and other financial responsibilities should get lighter in an ideal scenario. Also, your children would have completed their higher education and in some cases may also have got married, so your liabilities might reduce. Therefore, your term insurance policy period should also be according to the number of dependents in your family as you have to secure the future of all your dependents.

If your liabilities do not come down with age and you have a large number of dependents, the preferred option is to go for whole life cover.

3. Life goals

You can tailor your term insurance policy term to align with your life goals. For example, if you are in your 40s and want to get your daughter married in the next 10-15 years ensure that you have coverage until that time period. The main objective of term insurance is to make sure that your family achieves their life goals without any obstacle in their path. Therefore, it’s important to shield various life goals and life stages with term insurance coverage.

4. Time left for retirement

Ensure that you have life insurance protection at least until your retirement.

Questions you should ask yourself to determine the right policy term

One of the easiest ways to determine the right policy term for your term insurance plan is by asking certain questions, such as:

• When do I plan to retire?

• How long is it going to take my children to become self-dependent?

• Are my parents dependent on me?

• Can my family depend upon my wife’s income?

Though term insurance protection may not be a priority to 8 out of 10 Indians, according to a survey conducted in 2019, we cannot underestimate its significance in our lives. ^[1]Before you buy term insurance, it’s important to determine the required sum assured and policy term that is required to ensure your Life Goals are on track and that you have secured your loved ones.

Sources:
^[1]https://www.financialexpress.com/money/insurance/protection-not-a-priority-only-two-out-of-10-indians-have-term-insurance/1497356/