How to Choose the Right Term Policy Period?
In our post on which insurance is better – term or whole life – we told you about what both consist of and which is better for you. However, once you have made the decision, the next critical decision can be tricky. That is, what should be the duration of your term insurance plan? That you need a term insurance for securing your family till the members are independent is known, hence, your policy period should be as long as to give your family the freedom to become financially independent.
How much should the policy period be?
Understanding how long your policy term should be can seem overwhelming. A good rule of thumb is to select a policy where the premium-paying phase ends before you retire. Most policyholders opt for term plans that terminate when they intend to retire. The idea being that they no longer have a financial responsibility and they have no active income they need to replace. Before selecting the policy term, you must understand what impacts it.
Here are some of the important factors that affect your term insurance premiums:
The younger you are, the lower your premiums.
As a woman, chances are you may get offers or discounts from companies as death risk is lower than men.
Premiums will be higher if your sum assured is higher as your coverage will also be more than usual.
If you are a non-smoker, you may get discounts on premiums.
The premium amount differs according to payouts. If you opt for increasing sum assured, your premium will increase over a period compared to level sum assured.
If the duration of protection opted by you is longer than your premium will be higher. This is one of the key factors determining your term insurance premium. The term depends on how long you want to provide a financial protection to your family in case of unfortunate incidents.
Usually, most insurance companies offer a policy term between 5 to 40 years. One should always opt for a policy term depending on their retirement age. It can vary of course. For instance, if you opt for 60 years as retirement age, there could be someone else who would opt for 65 as retirement age.
Let’s look at the policy terms you can choose based on your age:
In Your 20s
If you’re currently in your 20s, select at least a 40-year term or opt for coverage until the age of 99. You should opt for a long tenure since you can make the most of affordable premiums without having to renew the plan.
In Your 30s
Like when you’re in your 20s, a 40-year term or coverage until the age of 99 is ideal for your 30s. You can reduce the tenure based on your financial liabilities and when you intend to retire.
In Your 40s
By now your financial liabilities might have reduced. You can choose 40-year tenure to get coverage until you turn 80. If you’re purchasing a policy for the first time, you may have to pay a higher premium than if you were in your 20s or 30s.
In Your 50s
You’ve reached middle age and your children might have moved away for their higher education. A policy term of 25 years should suffice. However, you can pick a longer tenure of 35 years or opt to get coverage until the age of 99.
Why you should opt for a longer term:
- Fixed premium rates. Once the product is bought, the premium would remain same for the entire duration of the policy.
- If you are young, the premiums will be lower and will remain so throughout the term.
- You will remain insured – guaranteed -- for the entire policy term.
All that you need to do is to understand, for how long your liabilities will last. How soon your children will be independent, how long will you work etc. Most policy terms matures at the age of 65, you can decide the term of your plan as per your present age.
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- 8 Questions to Ask Before Buying Term Insurance
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"The thumb rule for retirement planning is - the earlier you start, the more you save. However, with age, your priorities change too. So, you need to factor in the cost of living in the present vis- a -vis future."
HDFC Life Insurance Company Limited. CIN: L65110MH2000PLC128245, IRDAI Reg. No. 101.
Registered Office: Lodha Excelus, 13th Floor, Apollo Mills Compound, N.M. Joshi Marg, Mahalaxmi, Mumbai 400 011. Email: [email protected], Tel No: 1800-266-9777 (10 am to 7 pm). The name/letters “HDFC” in the name/logo of the company belongs to Housing Development Finance Corporation Limited (“HDFC Limited”) and is used by HDFC Life under an agreement entered into with HDFC Limited.
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