How To Choose The Duration For Term Insurance Policy?
When choosing a term insurance plan, sum assured and policy tenure are the two most important factors that must be taken into consideration. While the golden rule for choosing the ideal coverage amount is that it should be ten times your annual income, the tenure of the policy should be chosen after considering numerous parameters. Read on to learn about what the ideal tenure should be for your term insurance plan.
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How To Decide Term Insurance Policy Tenure?
The ideal policy tenure is the one where you don’t have to pay any premiums after retirement. However, there are several additional factors to take into account when deciding on the terms of a term insurance plan. Some of them are outlined in the section below.
- Age:
The individual's age plays an important role in determining the duration of your term insurance policy. For instance, a 25-year-old person can buy a plan for a tenure of 55 years, whereas a 55-year-old individual can get insurance coverage only for a tenure of 30 years. As a result, policy tenure decreases with age.
- Financial Goals:
There may be numerous short-term and long-term financial goals that you want to accomplish. Therefore, considering those goals, you must choose your policy tenure. For instance, a person saving money to buy a new car may opt for a short-term insurance plan. However, an individual planning to buy a property may have to invest for a longer time.
- Liabilities:
If you have any existing debts and liabilities, your term insurance coverage should be equal to the outstanding loan amount. Furthermore, the duration should match or exceed the duration of the balance EMI. Therefore, a term insurance company will help the nominees of the insured pay off their debts in the event of unexpected death of the insured.
- Increase Duration:
The best way to choose the policy tenure is to select the policy with the maximum duration according to your age and profile. Therefore, even though you only anticipate needing life insurance for the next 30 years, you should still opt for a 40-year tenure when you are 30 years old. This is due to the ambiguity of financial matters. However, it might not be offered if you decide to purchase insurance for the subsequent ten years at the age of 60. The policyholders also have the flexibility to stop at the age of 60 without facing any consequences.
- Affordability:
The objective of a term insurance policy is to create savings without hampering our budget. Therefore, you should choose the plan that accomplishes all your financial goals without affecting your day-to-day plans. Ideally, it is suggested that you choose a longer-duration term insurance plan to get extra perks and benefits.
Why Choose a Long-Period Term Insurance Plan?
Here are some of the reasons to purchase long period term life insurance policies.
- The premium remains fixed for the entire policy tenure. Therefore, you can create a corpus of wealth by paying the same premium amount for a longer time.
- As mentioned earlier, the premium increases with the individual’s age. Therefore, you will have to pay less premium if you buy term insurance at an early age.
- The policyholders remain covered throughout the policy period.
Conclusion
Term insurance is a financial asset that instils savings habits in you and helps you accomplish short- and long-term financial goals. However, when purchasing term life insurance, choosing the right tenure is an important decision that should be taken into consideration.
There are certain factors such as age, affordability, liabilities, and more that help in determining the ideal tenure.
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