Life is full of uncertainties, in order to make the family financially secure in event of your absence one needs to have a life insurance cover. The options available include endowment plan and a term insurance plan. A Term insurance, on the other hand, offers the complete sum assured in event of the death of policyholder but in the event, the policyholder survives the term of the policy then he/she gets nothing but sum assured is pretty high at a low premium. If the policyholder’s main objective is security then term insurance needs to be a priority.
Think of a term plan as an umbrella you will need as long as it rains. Therefore, the duration of your term plan should ideally equal the number of years your family is likely to depend on you financially. To put things in perspective, ask yourself the following questions
What is the corpus needed to cover the outstanding liabilities?
What financial difficulties can the family face in case I am not around?
Is the amount left outstanding after paying the debts adequate to cover family’s immediate needs?
What are large one-time expenses that could arise in future?
Following factors can be Considered before deciding on the duration for the term insurance Plan:
One of the factors to be considered include the liabilities. If the person has a home loan for 20 years then the duration of the term insurance needs to be 20 years.
Term insurance with longer time horizon tends to be more expensive, in case the premium for the duration you desire is putting immense strain on your finances then you should look to adjust the tenure and coverage amount so that you can strike balance while not losing out on benefits of term insurance.
Length of Support:
Your family profile is a huge determinant of duration to be chosen for the term plan. If the age of your child is 5 years and the goal is of providing cover till the child’s education then duration could be 18 to 20 years. If one wants to provide till marriage of the child then the duration of the term plan needs to be extended.
Commitments and Dependents:
What could be more worse than leaving nothing behind for your family or loved ones? Or leaving a debt pile for them to fend. If you accumulated debts over a period of time and are now worried that what would happen to your family if you are not alive? What would they do then one needs to take term insurance that covers the liability duration.
Term Insurance policies come with the term of 15 years, 20 years, 25 years and 30 years. If you are a 35-year-old individual, you can only avail a 25-year term plan and not a 30-year term plan. Also, if you choose a term plan that ends much before your expected retirement age, the whole purpose of term insurance is defeated. For example, you are currently 30 and plan to work until the age of 55, if you opt for a 15-year term plan, the plan will expire when you are 45. You are least likely to need protection until before the age of 45. Also, if you decide to go for a new plan at that point in time, it will cost you a fortune in the premium to be paid. Therefore, opting for a long duration at a younger age is advisable
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