Sunil, a 37-year-old software engineer is planning to amend the terms and conditions of his existing life insurance policy after the birth of her daughter. He is well settled with a family of four members. On consulting an insurance agent, he thinks the higher the duration of the insurance plan the more beneficial it is. Sunil wants to increase the assured amount of money so that he can take care of all his family members when any mis happening occurs. After his meeting with the agent, Sunil decides to opt for 80 years of duration of his term insurance plan.
Is this decision made by Sunil correct?
Well, one cannot say with precision whether Sunil is absolutely right or absolutely wrong. The duration of the insurance plans depends upon the purpose for which it has been bought. There can be different views regarding Sunil’s decision.
Some people might consider it as a good decision because the longer the time period of the term life insurance plans the more the safety of the family members after the death of the insured.
On the other hand, some people might be of the view that paying high premiums for such a long period of time makes no sense. One should choose the duration of the insurance plan keeping in mind as to when he or she will accomplish the financial goals. Till age 80, all the responsibilities; education and marriage of the children, a house and savings for retirement will be completed. Sunil must act wisely and understand that, with the passage of time the family members become more or less independent and thus, buying the insurance for 80 years is just a waste of money.
The latter group seems more logical and correct. A good financial planner never suggests you to choose the maximum duration for your insurance plan. Rather, his advice will be to make sure that you have a good amount with yourself when you retire. Try to analyze when will your families members, specifically your children will start earning and become less dependent on you. This should be the time when all your time insurance plans should expire!
Key factors to be considered while deciding the duration of the term insurance plan
There are some factors that should be considered while deciding the duration of your term insurance plans.
The current age of a person is a very crucial factor in deciding the tenure of your plan. According to your age, the insurer provides you with different plans starting from 15 years to 20 years and up to 30 years. The range varies as per your age.
For example, you can choose a 30-year term insurance plan if your current age is 25 years. But you cannot avail a 30-year plan if your present age is 35 years. In this case you can choose a 25-year term insurance plan.
Consider another situation. Suppose your age is 30 years now and you will retire at 50 years of age. Now if you choose a 15-year term plan that will terminate at age 45 you won’t be able to provide enough protection to your family. And if you decide to by a new term insurance plan at that moment, it will cost you a lot. Thus, the entire purpose of the term insurance plan is defeated! Therefore, analyze each and every situation that may arise.
Financial Goals and dependants
Nothing is worse than leaving a pile of debts on your family members after you pass away!
At the age of 30, everyone knows what he or she wants to achieve in his or her life. Your financial goals must match with the duration of your term insurance plans. This gives you a sense of security in a way that even in your absence your family members will have a strong financial support.
How much can you afford to pay?
It is good that you have come to a conclusion that term insurance plans are the best for you! But how much can you afford to pay? Buying term insurance plans for a longer duration are quite expensive.
If you think that you are unable to pay the high premium amounts on a daily basis, you should strike a balance between the coverage amount and the duration of the plan in such a manner so that you can avail the benefits of your insurance. If need arises, you can consult the financial advisor for the same.
Make sure, you always choose a plan that you can easily pay for.
Consider all your liabilities while deciding the tenure of the insurance policy. If you have a debt to pay which will be fully recovered after 20 years, the duration of your term plan should be at least 20 years or more.
There is no rule of thumb which can be applied to determine the exact duration for which one should buy the policy. The above-mentioned factors should always be kept in mind before you take a final move. Many other points such as the length of your family support, the retirement age that you have planned in your mind, your current financial status etc. also matters.
To give yourself a better clarity of thoughts look for the answers of some basic questions.
- How much financial help would be required by your family members if you are no longer with them?
- What are the major expenses that has to be incurred by you; education of your child, marriage of your daughter, some medical treatments if required etc.
- How much amount is needed to pay off the existing liabilities?
- How much should my savings be till I reach my retirement age?
Giving a deep thought on such questions will give you a more accurate idea regarding the duration of your term insurance plans.
Opt for a plan that goes well with your requirements and your budget.