When shopping for a term insurance plan, one of the most important decisions you will need to make is choosing the right term duration. Ensuring that your term cover lasts at least as long as your dependents need it, is crucial because running out of coverage will leave your family’s financial security in jeopardy.
Picking the optimum policy period is simple if you get the basics right: Too short a term might defeat the purpose of term life insurance, while too long a term can lead to a higher premium, meaning unnecessary expenses.
Consider the following factors while deciding the policy period for your term plan:
- Retirement Age
Matching your term insurance policy period until your estimated retirement date makes sense. Ideally, the policy period of a term insurance plan should be equal to the number of years your loved ones will be dependent on you. Because if you retire at the age of 58-60, then there is no income to be covered. Therefore, the term should be in-sync with the number of years you are expected to be earning.
For example, if you are currently in your 30s and wish to retire at 60, your policy period should be for at least 30 years. However, if you are in the 50s, you might choose a term of 10 years as most of your responsibilities and liabilities are expected to reduce by the time you hit the half-century. This way, even in your absence, your dependents are not devoid of the income that you bring home every month.
- Financial Liabilities
Apart from securing the future of your dear ones, purchasing a term plan also helps you cover for your liabilities, whether its outstanding loans for education, home, vehicle, etc.
Therefore, it is advisable to settle on policy period that exceeds your EMI paying term. For instance, if the payment of your home loan will take 15 years, your policy period must last for at least 15 years. This guarantees that if you pass away unexpectedly, the proceeds from the term plan will enable your family to square off the liabilities.
- Responsibilities and Dependents
This is another critical aspect that you must consider while choosing the policy period of a term plan. For that purpose, evaluate the number of years your dependents will require to become financially independent and get a term plan for at least that many years.
Also, make sure that major financial milestones like higher education of your kids or their marriage are well within the policy period. This will enable your spouse to cope up with the financial burden of these events in your absence.
While having a cover for longer duration is always a good idea, don’t miss the fact that long-term plans are more expensive. So, if you think that premiums will cause financial strain, it’s better to drop a few years from the term.
The Bottom Line:
The ideal length of term insurance is different for every individual as it depends on various factors such as commitments, dependents, financial goals, and liabilities.
Before zeroing on the right policy period, it is essential for you to comprehend the financial difficulties that your loved ones would face in your absence and the number of years it would take to get rid of these difficulties.
Finally, buying a term plan with the right duration doesn’t need to be complicated. Online calculators can provide you with estimates for pricing, term length and coverage amount, making it all simple!