Now, when it comes to a term insurance plan, one obvious question that many of you have is how long your policy tenure should be. Again, something you should be judiciously evaluating, as your decision will determine how well the policy will serve to protect your family’s financial future. Let us look at some factors here.
What to Consider While Choosing the Term Insurance Plan Duration
When you’re choosing the duration of your term insurance plan, here are a few critical aspects that you should always keep in mind.
- Financial Dependencies – The policy should last at least as long as your family members depend on your earnings (for higher education of children, needs of the spouse, etc.).
- Debts/liabilities – You should cover all your loans until they are fully repaid.
- Age of retirement – A common rule of thumb is choosing a tenure that concludes around the planned age of retirement, although some families may require coverage beyond retirement depending on their financial situation. Hence, if you are 40 years at present, you may opt for a tenure of around 20 years, assuming a retirement age of 60, while adjusting it based on your liabilities and dependents.
- Affordability: The premium you pay must be affordable for the entire tenure. The premiums in shorter durations are usually lower, while longer tenures provide extended coverage, but at a higher cost. This is another balancing point that helps make your decision regarding the preferred duration of your term plan.
Age-Wise Tenure Choices
When it comes to choosing the tenure, you should go by the requirements of your present age and stage of life. Let’s assume you’re a young professional in the 20s to 30s age bracket. In this case, many people opt for term insurance plans with tenures of 25–40 years so that the cover lasts till retirement and major financial obligations, along with repayment of liabilities. Middle-aged professionals in their 30s to 40s may consider tenures of 15–30 years to cover remaining loans and family needs till retirement. Those nearing retirement may opt for shorter 5–10-year term insurance plan tenures, depending on existing financial responsibilities. Sometimes entrepreneurs, businessmen, and self-employed professionals opt for longer tenures, even beyond the typical retirement age, since their income and financial responsibilities may continue for longer periods.
You can begin with something very basic. Subtract your current age from your target retirement age to get a crude guesstimate. However, you would need to adjust this to factor for your debts and your overall long-term goals. Many individuals opt for whole life insurance policies or term insurance policies that last throughout one’s life. This becomes important for individuals who require insurance for a long term. Take your time and go through the various tenures minutely before finalising your decision. Remember that it should be a tenure that adequately covers the financial risks of your family during your earning years. At the same time, you shouldn’t be stuck with an expensive policy where you struggle to pay premiums, just because you desire a longer tenure. Try to balance both these aspects to the best possible extent.
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