If you are the primary earning member of the family, then you would have financial dependents. The best way to ensure that your dependents continue to live a financially stable life even in your absence is to opt for a term insurance plan. What is the meaning of term insurance? It is a protection plan that offers coverage for a limited term in return for regular premium payments. If a tragic event occurs with the policyholder within the covered term, the family can receive the sum assured. One aspect that often confounds term plan buyers is the tenure that they should choose for their policy. Should they go for 30 years, 40 years, or maybe more? Let’s look at this in more detail.
Factors to consider when deciding the tenure
Understanding these factors can help you choose a better term so that your loved ones get the best protection.
- Your budget/affordability for term insurance premiums
You will be paying premiums for a particular duration of your policy. This would require you to part with a certain amount at regular intervals. You should check if you will be able to afford the premiums that are required without disrupting your daily expenses. Evaluate your current salary, and the hikes you are expecting in the coming years, to come to an understanding of how much your budget is.
The longer your term plan, the more will be the premium, as the coverage is being extended over a longer period of time. A term plan premium calculator is the best way to understand the effect of tenure on the premium.
- Your age
Younger individuals are often quoted lower premiums. This is largely because younger people carry lesser risks. As a person grows older, their immunity decreases, leading to higher vulnerability for health issues and the like. Therefore, it is advisable to opt for a term insurance policy in one’s 20s or 30s.
Getting term insurance at a younger age also means that you get to choose longer tenures if you want. For instance, if you are 30 years old, you can opt for a 50-year tenure that can cover you until you are 80 years old. On the other hand, if you buy a term plan at 50 years of age, you may be able to choose a tenure of 30 years only, not to mention the high premiums you will have to incur.
- Your debts and liabilities
If you have liabilities, such as a home loan or a car loan, then you should ideally opt for a term plan that is longer than the tenure of the liability. So, let’s assume you are a 35-year-old with a home loan whose EMIs you have to pay for the next 20 years or so. Then, you should buy a term insurance that covers you till at least 55 years of age.
In case anything unfortunate happens to you within that time, your loved ones can continue paying the EMIs with help from the death benefit payout.
- Financial goals planned for your family
When you are planning the tenure of a term insurance policy, it is important to take the goals for your family into consideration. For instance, if you have plans to send your children abroad for higher education, you can calculate the years it might take them to reach the admission age and the graduation age. The tenure should be higher than the years remaining for these events. This ensures that no matter what turns life takes, your loved ones are ready to pursue their goals financially.
FAQs related to term insurance tenures
- What is the meaning of term insurance ‘return of premium’ plans and how does the tenure factor into it?
The return of premium plan is a feature wherein the policyholder receives the total premiums paid if they survive the maturity of the policy. This feature is helpful if you have objectives of investment after a particular number of years. It can be considered as a kind of savings plan.
- Can one extend the tenure of their term insurance plan?
Yes, depending on the insurer, one can extend the tenure of their term insurance plan.
- Does the term insurance premium calculator provide accurate results?
The premium calculator is an AI tool that estimates the premium based on certain variables only. The actual figure may vary slightly depending on several factors.
Thank you for reading!
