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How long should your term insurance cover be?

The term ‘death’ is something none of us wants to ever discuss. In fact, living in the present moment has become the new mantra for life. No doubt, living every moment of life to the fullest is the best practice we all must follow; not to forget - death is also inevitable.

Every day in our lives, we form new relationships and take up new responsibilities that must be secured and protected against any unforeseen circumstances. While everything else is secondary, it is of utmost importance to financially secure the future of your loved ones and for that – term life insurance is the one-stop solution. Term insurance provides a huge cover amount for a small premium for a defined period known as policy tenure and the insurance company pays the cover amount upon your death to your nominee.

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Term insurance gives policyholders the prerogative of choosing policy tenure, sum assured, payout method, and premium payment term as per their own convenience. When planning to buy a term life insurance plan, buy one according to your priorities and examine some important aspects that will benefit you the most. In addition, one such aspect that is tricky and needs your due consideration is picking the policy period.

While a too short policy defeats the purpose of term insurance, a too-long policy tenure makes you pay more premiums than you should. Term plans can broadly be categorized into two categories basis the Policy tenure–regular term plans that cover you for up to 75 - 85 years of age and whole life kind of term plans that provide coverage up to 99 – 100 years of age. It is important to evaluate the length of your term insurance plan is when your financial dependents would need money if something happens to you.

Choosing a policy tenure or cover period majorly depends on your current age and your retirement plans. For instance, you are a salaried person in your late 20's or early 30s and are likely to retire by the age of 60; then, you must go for a 35 – 40 year term plan. This will get you covered up until your desired retirement age. In the next 35 – 40 years, all the major expenses will occur including the education of kids and their marriage along with retirement planning.

As a result, your family would certainly need financial protection when you are aged between 30-60 years. God forbidden, in case of your demise within this period, your financial dependents will receive the cover amount that can be used to take care of one-time and everyday living expenses.

For self-employed individuals who do not wish to retire from work in their late 50s or early 60s and want to leave a legacy for their legal heirs, there are whole life kind of term insurance plans that promise coverage until 99 – 100 years of age. These are most likely to give your family the cover amount at some point or the other since the coverage is being opted for a period that is far above the average mortality age. Self-employed individuals who do not work as per a defined retirement age and wish to keep their lives secured until alive without worrying about the age as such mostly prefer these plans.

Also, few people end up buying term insurance plans for 10-15 years as well with the thought of revisiting the cover and tenure at a later stage. This might make you end up in tricky situations. It may happen that you may not be able to get term insurance due to some medical ailment, which you would have got into as age progressed, or the premium at which you may get one may not be to your liking as the insurance company assesses risk basis your current health status as well. Another thing being you will have to pay a much larger amount of premium for same cover amount being opted for a 15-year cover period at age of 30years and another one at age of 45years versus what you would have paid had you opted for a 30-year cover period at age of 30 years.

Leaving aside the type of employment and people of different age, even two individuals of same age for example 40years may also end up in a scenario where their policy tenure should be different ideally. While one would have had kids at the age of 25-27years, one would have had kids at the age of 35-38years. The age at which the financial responsibilities end will differ basis this and hence, the policy tenure should be ideally different for them. We can run into lakhs of different scenarios and everyone is unique basis their lifestyle and family profile. Hence, it is important to evaluate the future financial needs of your family as the age keeps progressing and choose the cover tenure today, as no two situations can ever be the same.

The author, Sajja Praveen Chowdary, is Head, Term Insurance at Policybazaar.com. The views expressed are personal

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