Taking a life insurance, especially term insurance, is one of the important decisions to be made for a secure future – financially and mentally as well. If you have term insurance, you need to worry one thing less about your family, should anything happen to you – i.e. their financial circumstances. By investing in term insurance, you choose to financially safeguard your family tomorrow.
But when choosing a term plan, there are many things that are to be considered such as what should be the cover amount or the sum assured, what type of premium payment option to choose etc. Apart from these, the most important aspect to take care of is selecting the right policy term.
Sometimes what we do is, in order to save on premiums, we choose a policy term or policy period which is shorter than usual. Doing this may save some bucks but it may not serve the very purpose of buying a term plan. Your insurance should cover you for a decent period of time. But what is the right policy period for term insurance? Let’s delve into it.
What is the Right Policy Period?
The policy term, or commonly known as the policy period, of a term insurance policy may vary from 5 to 40 years. The right policy term depends on multiple factors, such as:
Your Current Age and Your Retirement Age
The most important factor in deciding your term insurance policy period is your age. This is further sub-divided into your current age and your retirement age. The best age to buy a term plan is as early as possible and to stay covered for as long as possible. A longer policy period is only possible if you buy your policy at an early age, say between 25-30 years.
If you’re at a younger stage in your life, you will be offered a longer policy period, simply because the risk of your demise is thin as compared to someone in their late 50s.
Next, take a look at your retirement age. If your retirement age is 60, the least is to stay covered at least till you’re 60 years old. However, ideally it should be 5-10 years more than your retirement age.
It should be noted that the life expectancy in India is around 70 years now, and if you maintain a good lifestyle, it could easily stretch to 75 to 80. That makes for another reason why you should be having a longer policy term.
Try choosing your term insurance policy period till 75 instead of 65 years. Check the premium using any online premium calculator and if the difference comes down to a mere Rs 100 or Rs 200, it is wiser to stay covered till the age of 75 years.
Your Current Lifestyle Habits
Are you a healthy person with minimal health issues? Do you smoke or consume alcohol often? Are you overweight or obese? Do you indulge in regular exercise or physical activity or does your day include long sitting hours? Depending on your answers to these questions, your policy period must be decided. If you’re a healthy person who expects to lead a long life, choose a longer period.
A good option here is to opt for a critical illness rider if you have an unstable family health history or if you smoke and/or drink. Most insurance companies provide coverage against 30-40 critical illnesses like Tata AIA and ICICI Prudential Life. However, if you’re looking for a much more comprehensive plan, you may consider another option which is the Max Life Insurance Smart Secure Plus Plan and add their critical illness rider which currently covers the maximum number of critical illnesses (64). This rider also provides coverage against Total Permanent Disability.
Look at your current life stage. Are you married? Do you have children? How many dependents do you have whose finances you need to take care of? If you’re married and/or have children with other dependents such as your parents or parents-in-law to take care of, make sure you’re choosing an appropriate duration to stay covered. If you have young kids, your policy period must be until they are financially stable and independent.
Your Family Health History
Take a long look at your family health history. There are certain ailments like diabetes, high/low blood pressure, kidney-related issues and heart & liver ailments etc. that may pass onto the genes. If so, chances of you developing these issues are also high. In such circumstances, look at your current age and health. Your insurance company shall also take these factors into consideration and may not offer you a very long term insurance policy period.
Your Existing Liabilities
What are your existing liabilities? Any running loans like a home loan? If yes, measure the remaining years of your loan repayment and decide on your term plan policy period at least equivalent to that (ideally try taking more than that). This way, in case you retire, your family will be able to pay off the dues from the term insurance claim amount.
Why Should I Choose a Longer Term Insurance Policy Period?
Choosing a longer policy period serves you well in the future. How, you ask? Your term plan’s premium will remain fixed – throughout the policy period – longer protection at a lower cost. Let us explain:
Suppose you buy a shorter duration term plan, say for 20 years, and you survive the policy term. Now, the next time you buy a new term plan, your premium will be much higher than what it was 20 years back. Inflation would have increased, your health might have deteriorated, your liabilities might have changed, etc. All this will impact your premium and now you will not be able to get a very long policy period. If you want, you’ll have to pay higher premiums for the same.
So, isn’t it wise to make hay while the sun shines?
Once you’ve gone through all these factors and asked yourself all the right questions, you will be able to come to the right conclusion, i.e. how long should the policy period for your term insurance be? Also, you should keep reviewing and updating your term plan as per any major life changes that you encounter. This way your policy serves you in the best possible way and secures your loved ones at the maximum. Also, in the free look period of your term insurance, usually 30 days from the date of purchase of the plan, analyze your policy properly. If needed, you can enhance or shrink down your policy period in this durations easily.
If you’re still apprehensive, it is better to take help from the professionals and experts in the field. You may go online and calculate your policy period as well as your premium for the term plan using a premium calculator from companies like Max Life Insurance, Bajaj Allianz, and the veteran in the game, LIC. These companies offer comprehensive term insurance plans in the market at high claims paid ratio of 99.51% (FY 22-23), 99.02% and 98.74%.
This number ensures that your money is safe and your dependents will most likely be able to get the most out of the policy in case you’re not around. After all, that’s the whole idea of life insurance, right?