A life insurance policy acts as a foundation stone of a successful financial plan. Even before investing your hard-earned money in investment instruments, it is necessary to buy an insurance policy first.
You invest in financial products to earn significant returns in the long term. However, have you imagined what will your family members go through if anything untoward happens to you? How will they cope up with the finances? Can they manage the day-to-day expenses and achieve the long-term financial goals? Therefore, securing the financial future of your family should be your topmost priority.
You may come across various types of life insurance plans. However, it is advisable to invest in a term insurance plan. If you want to have a clear idea about what is term insurance and how it can safeguard your family’s monetary well-being, read on.
Term insurance is a simple type of life insurance policy that provides financial protection to the policyholder’s family if he or she passes away untimely during the plan’s tenure. It acts as an income replacement tool for the family to fulfill all the financial goals and meet the household costs. It is because term insurance plans offer a high sum assured at an affordable premium.
While investing in a term insurance policy the two essential factors to consider are the sum assured and duration. Usually, people tend to overlook the period and select it randomly. However, this is a wrong approach.
If you do not choose the policy duration carefully, your family’s economic security can be in jeopardy. Unlike traditional insurance plans that secure the life of the policyholder until he or she is alive, a term plan provides cover for a specific duration. Therefore, it becomes necessary to be wise in opting for the tenure. Here, the thumb rule is that you do not choose a term plan until your retire or till the time your dependents can become financially stable.
Aspects to consider while choosing a term plan duration
Here are some factors to keep in mind while choosing your term policy period:
- Age
It is recommended to buy a term insurance policy at a young age, as the premiums are significantly low. As the premium remains stagnant throughout the plan’s duration, it becomes essential to start investing at an early age and keep the maximum tenure. On the other hand, people in their late 40s or 50s may opt for a term plan with a shorter tenure. This is because the premium is high for older people, and in all likelihood, their children will become monetarily self-sufficient in a few years. So, as their financial responsibility will reduce with time, they may pick a shorter term of around 20 years.
- Sum assured
The sum assured, age of the policyholder, and the tenure of the policy have a huge influence on the term insurance premium. For instance, if a person in his late 30s wants a sum assured of INR 1.5 crore and a tenure of 30 years, he may have to pay a premium of INR 30,000 per annum. Those who cannot afford to pay such an amount every year will have to consider getting a lower sum assured or will have to select a higher tenure to lower the premium. So, you will have to carefully finalize the tenure based on your budget and the sum assured.
- Other parameters
You need to take various other points into account while ascertaining the term plan period. For instance, factors like when are you planning to retire, the number of dependents, and existing loans do matter while selecting the term plan’s duration.
Make sure that you do not buy a term plan for a shorter period just to save money on the premium. Opt for a maximum tenure at an early age and lead a tension-free life.