One of the simplest and most affordable forms of life insurance policies is term life insurance. It is the ideal policy for those who want to protect their loved ones financially in their absence. There are two fundamental aspects of a term life insurance – the total coverage and the term life insurance policy period.
One of the simplest and most affordable forms of life insurance policies is term life insurance. It is the ideal policy for those who want to protect their loved ones financially in their absence. There are two fundamental aspects of a term life insurance – the total coverage and the term life insurance policy period.
Identifying the right sum assured for your term insurance plan includes considering how much coverage you need (to pay for a loan, to pay for a child’s education, etc.) and how much premium you can afford.
A term insurance policy makes sure that your family is taken care of, in case of an eventuality. So, when you are looking for a term life insurance, it is imperative to choose the right duration. Deciding on the period for the term insurance policy involves a somewhat similar equation like the sum assured. Read on to know more about the same.
Important aspects of Term Insurance Policy Period
The average term insurance policy period can range anywhere from 10 to 30 years, and in some cases, it may even get extended by 5 or 10 years. When you choose a term for term insurance, your main aim should be to cover yourself till the time or age you will be working.
The sum assured is the death benefit amount that you choose at the time of purchasing the policy. The death benefit amount gets paid to the nominees during emergencies. It is generally recommended that you select a coverage amount that is equal to at least 5-10 times your annual salary, plus any debts that you may have.
It goes without saying, that higher the coverage you opt for, higher will be the premium you are required to pay for it. But, should this aspect make you choose lesser coverage instead? Absolutely not! The payout from the term life insurance policy is tax-free and can act as the financial lifeline for your loved ones when you are not there. Some of the expenses which can be managed with the help of the coverage include:
- Funeral/burial and other similar expenses
- A home loan or rent payments
- Daily expenses
- Clearing any debts, taxes, or medical bills
- Childcare
- College costs for your children or child education
There are various payout options in term insurance. You can choose for your beneficiaries/nominees to receive the death benefits either as a lump-sum payment, monthly payouts or as a partial payment.
Calculating the Right Duration for your Term Life Insurance
To begin with, you should be clear about the reason why you are buying the term insurance. The most common and prime one being to ensure that life’s eventualities do not leave your family in a financial lurch. Based on your current financial status and life stage, you should choose the right term for your policy. For example:
- If you have a child, you may want to consider coverage of at least 25 years, as that would be the average time that you will have to consider for their upbringing, college tuition, and similar expenses.
- In case you have bought a new home, a minimum 30-year term would be best suited for you, as that is more than likely to be the term of your home loan too.
Why Choose a Longer Duration?
A term life insurance (unless you have opted for the premium back rider) only pays out the benefit amount, if the policyholder passes away during the policy term. There are several reasons why you should consider choosing a more extended coverage period when it comes to choosing a term life insurance policy: -
- Right now, the premium for you is lower than it ever will be
The premium for your term life insurance policy will increase as you get older as your health condition will also differ from your younger age. Any new diagnosis or disease can increase the premium rates in the future if you apply for a new policy. So, buy as soon as possible and ensure that you choose a policy with longer-term to avoid buying a new one in the later stages of your life.
- Life is unpredictable
You may work out the maths for how a short-term policy is perfect for your financial goals. However, several changes might make you wish for a longer coverage later in life. You might have another child, invest in a home, start a business, or some other financial expense. So, it's better to be safe than sorry. Opt for a longer duration in the very beginning.
- You can lower coverage and premiums later
It is possible that after 20 years into your 30-year term, you feel that you do not need such a huge amount as the death benefit. At that point, you can also opt to lower the coverage and premiums for your policy. This is a much better option than having to buy a new policy later in life.
Conclusively, when it comes to picking the right policy period for your term insurance plan, it is all about your needs and requirements. Make sure you consider all your requirements and keep the period of the term life insurance high on your list of priorities before you choose the right term policy. You can visit BimaKaro.in for any query related to term life insurance and further make a sound buying decision.
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