Pick your term insurance policy period smartly

Choosing the right term policy period is a combination of factors like age, liabilities, dependents, financial goals, and earning years.

A policy for too short a period might defeat the purpose of life insurance, while too long a period can lead to more premium outflow and hence unnecessary expenditure. The right policy period for term life insurance plans is different for each one of us, and therefore, crucial to choose.

If you are looking for a cost-effective way to get a long-term life insurance cover, term life insurance is your best bet. A term life insurance helps take care of the needs and liabilities of your family in your absence. However, one of the key decisions, while choosing a term plan, is to select the right term.

Picking the right policy period is simple if you get the basics right. Before starting, let’s get familiar with two terms often used while purchasing term life insurance — policy period and premium payment term.

● Policy period refers to the duration for which the plan covers you

● Premium payment term is the duration for which one has to pay the premium

Consider the following aspects while deciding the policy period for your term life insurance:

No. of years to retirement

Age is a crucial factor while deciding the policy period. Your policy period should be in-sync with the number of years you are expected to be earning, and having a regular source of income.

For instance, if you are in the 50s, you might choose a policy period of 10 years as most of your major responsibilities and liabilities reduce by the time you hit a half-century. However, if you are in your 20s and wish to retire at 65, your policy period should be for at least 45 years.

This way, even in your absence, your family is not devoid of the income that you bring home every month.

As a thumb rule, the younger you are, the longer the policy term. Also, buying a policy in your 20s will warrant a much lower premium than buying it at the age of 50.

No. of years till all EMIs are paid

One of the primary objectives of a term policy is to cover you for your liabilities.

These can be in the form of outstanding loans for home, vehicle, education, personal expenses, etc.

It is advisable to opt for a policy term period that exceeds your EMI paying term for your loans and liabilities. For instance, if your home loan will take 20 years to be paid off, your period must last for at least 20 years.

This will ensure that in case you are no longer there, the proceeds from the term life insurance will help your family square off the liabilities.

Years till all dependents are settled

This is another important aspect that you should consider while deciding the policy period.

Estimate the number of years your dependents will require to become financially independent and get a term life insurance policy for at least that many years.

Major financial milestones like higher education of your children and their wedding should be well within the policy period, so that your family can cope up with the financial burden of these events in your absence.

Policy period

The ideal length of a term life insurance is different for each individual as each one of us has different financial goals, commitments, dependents, and liabilities.

Before zeroing on the right term period, it is important for you to gauge the financial difficulties your family and dependents would face when you are no longer there and the number of years it would take to get rid of these difficulties.

Ideally, you should opt for as long a policy term as available. This is because with term life insurance, you can discontinue the policy when you feel that all your liabilities and goals have been achieved and that you do not have any financial dependents.

(The writer is Director, Strategy, Exide Life Insurance)