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A term plan can be the simplest form of insurance. Although it can be the purest form of an insurance product, you might struggle to select the right term policy for you and your family. The primary reason for the difficulty in choosing term insurance accurately can be the failure in understanding the tenure. While many of you might assume that you do not require a long term policy, you might put your whole family in danger. Rather than choosing the duration of your term insurance plan based on your perceptions, let’s understand the top five factors that can help you pick the right tenure effortlessly:
- Cost
The term insurance premium can be an essential part of your whole policy. Since the premium amount can be paid in return for the cover, you should pay it regularly during the on-going tenure of your term policy. The premium cost can depend on the term of the policy, your age, your coverage amount, and so forth. Ideally, you should calculate the premium cost before the final purchase of the term policy to know if you can afford the amount. If you are unable to manage the premium payment due to loss of income, critical illness, physical disability, and so forth, you should adjust the tenure of the coverage to not lose out on term insurance benefits.
- Financial dependents
As you grow older, your financial dependents might increase. For instance, your spouse and your children can depend on you financially to meet their needs. When you are alive, you might leave no tables unturned to ensure all their financial requirements are met. However, your partner and your children might suffer financially in your absence. To secure them financially even after your demise, you should buy term insurance after evaluating the number of dependents and their specific needs. Taking the number of dependents into consideration can help you understand how long they need the financial coverage.
- Age
Under term insurance, you can receive financial coverage for a duration of 15, 20, 25, and 30 years. As a 35-year-old adult, you can choose a tenure up to 25 years. If you select a term policy that can end before your retirement age, the primary purpose of a term plan can no longer hold importance. Let’s assume that you are a 30-year-old individual who plans to work until 55 years. As a 30-year-old, you should choose a 15-year term plan, which can expire once you turn 45. If you purchase a term policy after crossing 45 years, the term insurance premium can be relatively high since you might be prone to severe health conditions, such as kidney failure, stroke, cancer, and so on. Typically, you should buy a long-term policy at a young age.
- Liabilities
When you are young, your primary focus can be to build a strong career for you. However, due to lack of funds at a young age, you might borrow loans to receive financial support. For instance, you can take a student loan for higher education, business loan to start a new venture or a travel loan to explore new cities. If you have past debts, you should choose the duration of your term policy wisely. For instance, a home loan of 20 years can require tenure of 20 years as well.
- Goals
Every individual can have various goals such as buying a new house or a car, starting a new business, settling abroad, funding your child’s education. Let’s assume that your child’s education is your top priority. If your child is 5 years, you should select a tenure up to 18-20 years to fund your child’s education. However, if you plan to meet the financial requirements of your child until his/her wedding, your tenure can be extended. Many insurance companies can allow you to fund your child’s education under a term plan.
To sum up, a term plan can offer financial coverage up to a specific duration. However, you should select the tenure of your term policy based on the financial requirements of your family. If you choose a longer duration, you might have to pay a relatively high premium throughout the tenure of the policy. A short tenure can leave your family underinsured against unfortunate events. Therefore, check with your insurer and select the tenure of the term plan accordingly.
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