Life is full of unpredictability; anything can happen anytime. So, it is important to create wealth to protect the future of your family, especially in your absence. Choosing the right term insurance plan helps you cover the financial shock on your family if something happens to you. A term insurance plan provides you protection for a certain period or term of your life. The nominee/beneficiary receives the death benefit if the life assured dies during the policy term.Read more
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However, the major concern of buyers while selecting a term insurance plan is: What is the ideal term for term insurance? What is the age limit for insurance? However, most of us don’t have a clear idea about how much we should be assured for and how long. As a result, we end up choosing the wrong plan. Let’s discuss these concerns in detail for smooth understanding:
A Term Insurance is a pure protection plan that provides life cover to the assured against the risk of an unfortunate event or pre-mature death during the policy tenure. In case of the death of the policyholder, the sum assured amount is paid to the family of the policyholder. The sum assured amount might help the assured’s family to take care of their regular household expenses such as marriage, child’s education, payment of EMIs, house loans, etc.
The simple formula to calculate the coverage of term insurance depends on the age and the yearly income of an individual. One can go up to 25X of his/her annual earnings to confirm that he/she has a suitable cover. Alternatively, one can calculate the protection cover by using the following formula:
Income X Working Years = Protection Coverage
The above formula is a convenient way to reach an accurate figure by considering some factors such as the number of dependents, the living expenses of your dependents, what kind of lifestyle one wants to provide to them, for how long they require financial support after him/her, and current investments.
As we have discussed, the term period of the term insurance plan should ideally be equal to the number of years the policyholder's family is dependent on him/her. To put things in the right perspective, one should ask the following questions to him/herself:
What is the corpus required to cover the outstanding responsibilities?
What financial problems can my loved ones face in case of my absence?
What are one-time expenses that could arise in the future?
The following factors play a key role in deciding the term of a term insurance plan:
Age – The duration for term insurance depends on what age you are thinking to buy a term insurance plan. It is always a smart decision to buy a term insurance plan at younger ages. The younger you are, the longer the term, and the lower premium you are required to pay. For example, a 30-year-old is offered a plan of 50 years term whereas a 50-year-old is provided only with 35 years of tenure.
Liabilities – If you have any type of debts to be paid, your term cover should be equivalent to the unpaid amount of loan and the tenure should be equal to or more than the EMI duration. Later, if something happens to you untimely, then your loved ones are not stressed by the loan amount payments and the insurance earnings will help your family to square off the responsibilities.
Financial Objectives – As a family, you have several life milestones to accomplish and objectives to meet. It is necessary to select the term of the term insurance plan by following these milestones so that in case of your absence, your financial liabilities are achieved by the sum assured amount that is paid out.
Extend Your Duration – Go for a term insurance tenure that is available as per your age and profile. If a 30-year-old individual predicts the requirement for life insurance for the next 30 years, then he/she should still go for a 40-year tenure plan because finances are unpredictable. And if at 60 years of age, you want to buy a term insurance plan for the next 10 years, it might not be available. Whereas if at the age of 60, you wish to discontinue your plan, then you can do the same without any consequences.
Cost-effectiveness – Another important factor is its low premium rates. The longer the duration, the lower is the premium price. Hence, before purchasing any term insurance plan, consider current savings and cash flow, then determine if you can pay premiums comfortably without disturbing your normal life.
It is possible to purchase a term insurance plan till 66 years of age and you can choose the coverage that continues till 99. You can buy a term plan between 18 years to 65 years. The age limit for term insurance is an important factor to consider. The selection of the term plan is based on the financial requirements, age limit, diseases/illnesses, and any other liabilities.
The age limit for term insurance might vary from insurer to insurer. Most of the insurance providers cover the life assured up to the age of 75 years to 85 years and some other might provide coverage till 99 years of age. Determining the ideal term period of term insurance is equally important as evaluating the insurance requirements. You need to give a thought about the money your family may need in case of your absence.
The decision of purchasing a term insurance plan depends on your current age and your retirement plans. For example, if you are of 20 years and wish to retire at 60 years, then you must opt a 35–50-year term insurance plan. This type of plan keeps you assured till your retirement age. And it is always suggested to buy a term plan at early ages because of low premium rates as the risk of diseases/illnesses are low in younger ages.
In your 30s and 40s, you will possibly get married and start your new family. Now that you have new dependents in your family and it is the right time to start thinking of purchasing a term insurance plan. Before buying a term plan, consider the type of business you have, retirement plans, and the type of employment.
At 50 or 60 years of age, your children will likely be settled and the financial burden on you to pay the bills and other related expenses will decrease. At this time, you can think of having a pocket-friendly plan for 15 to 25 years.
A term insurance plan provides long tenure benefits to the policyholder and his/her family at a very pocket-friendly premium rate. Everyone from young working individuals to working parents should go for a term plan. The sum assured amount should be sufficient to cover your loved one’s financial requirements when you are not around. So, overall, this plan gives peace of mind that your family is safe even if you are not with them.
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