Dev is planning to buy a term life insurance plan to ensure that his family remains financially protected in case of his untimely demise. carefully estimated a coverage need of ₹3 crore—taking into account his housing loan and his son’s future education expenses. But he is confused about one important aspect – till what age should he maintain the term insurance cover – 55 or 80? Here are the key things to consider when making this choice.
What is a Term life insurance policy?
is a simple, affordable policy that provides financial protection to beneficiaries if the policyholder passes away within a specific period.
It provides high coverage for low premiums, but unlike ‘popular’ life insurance, most term life insurance policies do not provide any return on maturity.
How to choose the length (number of years) of the policy?
If you have children –– especially a young family — a popular rule of thumb is to choose a term long enough to see them out of the house and through college.
“The core purpose of term insurance is income replacement thus, choosing the right policy term really comes down to how long your family would rely on your income,” according to Varun Agarwal, Head of Term Insurance at Policybazaar.com.
If a customer’s key responsibilities like children’s education, loans, spouse dependency are likely to end by mid-to-late 50s, a policy till 55–60 years is sufficient.
Who should buy longer term plan?
A longer cover (70–80 years) makes more sense if dependents include a non-working spouse or children in case late parenthood.
Policy premiums until 55/60 years are lower, until 80 years premium are higher, but they offer longer safety net.
“Only those customer’s should opt for a term plan till 80 years those who have their financial responsibilities ending late, or if they’re thinking about long-term security or someone who desires an extended financial cushion for their family,” Agarwal notes
How to decide about term plan coverage amount?
The one of the simplest rules to follow while buying a term is choosing the coverave amount as 10x of your salary, but it probably doesn’t consider all your family’s expenses and needs.
Hence, you should carefully calculate how much money is needed to ensure that your children college won’t be a problem. Also, if you have loans – like housing loans, car loans, personal loans – do calculate those liabilities too.
Whom to name as beneficiary?
The money doesn’t have to go to one person. For example, you could give 50% to your spouse and divide the rest between your adult children.