It’s great that you care for your family’s financial future, if something untoward happens to you. A right term insurance policy would take care of your family’s expenses in your absence. Your children can still continue pursuing education and get married at the right time. Your family can continue to stay in the house which you bought by availing a home loan, and has not been fully repaid. Term insurance can be considered as a substitute for your income when you are not around.
Most of the critical decisions aren’t easy. Wrong decisions can have long lasting impact on your family. One such decision is ‘what should be the duration of my term life plan?’ Term insurance policies are offered for tenures of 10 years, 15 years, 20 years, 25 years and 30 years. But nobody is sure of the right tenure.
To find the right tenure, you must first understand the need for term insurance. You require term insurance in order to secure family's lifestyle, till dependents become financially independent. This means, when you are not around, your dependents can still afford the rent, school or college tuition fees, clear the unpaid loans, and lead a comfortable life.
Your answer lies here. The term insurance policy period must be long enough to give your family members sufficient time to become financially independent.
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A term insurance policy is pure risk cover. It offers life cover to the policyholder against the risk of untimely death within the term of the policy.
If the insured dies within the term, then the sum assured would be paid to the nominee or beneficiary. This sum assured helps dependents take care of living expenses, children’s education, marriage, home loan and so on.
Typically, insurers would cover policyholders till the age of 60 years. Tenure of the policy varies across insurers. The tenure of a term insurance policy varies from 5 years to 40 years.
Following are the Key Factors Affecting Premiums of your Term Insurance Policy:
Age: Age is a key factor which decides premiums. Young applicants are offered term policies at low premiums.
Gender: Insurers generally offer term plans at a lower cost to women as research has shown that the life expectancy for women is slightly higher than that of men.
Sum assured: The sum assured has a major impact on premiums. Higher the sum assured, higher would be premiums.
Lifestyle: Individuals who are alcoholic and (or) smokers, would be offered term plans at a higher premium. This is because insurers have to bear higher risk.
Term: Polices of longer tenure are offered at higher premiums.
Term of the policy is one of the key factors determining premiums of the term plan. Term of the policy depends on how long you want to cover yourself against risk.
Typically, the term of the policy offered by most insurers varies between 5 years to 40 years. As a Thumb rule, you must opt for a policy term depending on your retirement age.
For example, if you are planning to retire at the age of 60 years and your current age is 25 years, then you must opt for a term insurance policy covering 35 years. However, the retirement age varies and few may work till the age of 65 years.
SEE ALSO: Best Term Insurance Plans In India
In the 20s – You must opt for a term of 40 years. By availing term plans at a young age, you get the benefit of paying low premiums. It is advisable to avail term plans of longer tenure at young age as responsibilities would increase as you grow old.
In the 30s – You can opt for a term plan which covers 35 to 40 years. The term also depends on the number of dependents you have and how long you are going to work.
In the 40s – If you are in the 40s, then you can opt for a term plan of 20 to 25 years. When in 40s, liabilities reduce, as you may have repaid most loans.
In the 50s – When you are in your 50s, your children would be grown up and less dependent on you and also, your liabilities are lower. Hence it is advisable that you opt for a policy term of maximum 15 years.
Below are the reasons why you should opt for a longer term:
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