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How Long should my Term Insurance Cover be?

dateKnowledge Centre Team dateFebruary 24, 2021 views223 Views
How Long should my Term Insurance Cover be?

Death – something none of us would ever like to talk about. Living in the moment has become the new mantra. Although living in the present is the best thing we can do, death also is inevitable. With each passing year, we form new relationships and we take on new responsibilities. Choosing the right financial resources such as a life insurance plan, can help cover the financial shock on your loved ones if something happens to you. When you buy term insurance, it has no value, in the sense that only benefit upon death is guaranteed by the policy. Term insurance covers you for a certain period or 'term' of your life. If the policyholder dies within the policy term, the nominees are given the benefits of the plan. The advantage of buying term insurance is that it

is less expensive than permanent insurance. In permanent insurance, you start paying from the day of buying the policy and keep paying until death. Term insurance gives you more clarity and structure. Obviously, at the end of the day, you should buy insurance according to your priorities, but also examine to find out what will benefit you the most.

The premiums are different for everybody, as they are calculated based on the factors like age, health conditions, and life expectancy to offer you the best term insurance policy for your needs. Here, you need to ensure that you are not hiding any important information related to your health to the insurers. Your medical reports and underlying conditions, if any, need to be revealed at the time of buying insurance. Premiums will be fixed for the length of your term. If a policyholder dies during the contract period, then the company will pay the face value of the policy. However, if the policyholder dies after the expiration of the insurance, then there shall be no coverage.

What is the ideal length of the term insurance cover?

Most insurance companies cover the policyholders for up to 75-85 years of age while some others may provide coverage till the age of 99. It varies from insurer to insurer and can also be negotiated. Evaluating the length of a term insurance plan is as important as determining the coverage needs. You need to think about the money your loved ones may need if something happens to you.

If you are in your 20's

  • Buying a term insurance depends on what age you currently are and your retirement plans. Let's say you are in your 20's 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.
  • It is good to think and plan for your future, but honestly, if you are in your 20's, you should inculcate a savings habit rather than investing in term plans. At such a young age, when you do not have family responsibilities, term insurance will be of no use for you. Chances are your parents have already done that for you.

In your 30's and 40's

  • When you enter your 30's or 40's, you will likely get married and start your own family. Now that you have people who are dependent on you, you should start thinking about buying term insurance plans.
  • At this age, you should opt for a 35-40-year term insurance, again, depending on the type of your business and retirement plans or employment type.

In your 50's and 60's

  • When you are older, around 50-60 years of age, by this time, your children will likely be all settled, and the burden on you to work and pay bills will reduce. At this age, you can opt for an affordable term plan as you would've already lived more than half your life. Go for a 15-25-year plan.

Factors that you should consider while evaluating your coverage needs

When it comes to these things, everybody is going to give you generic advice, but no two situations can ever be the same. Your income level, expense level, the size of your family, and your debts are also important determinants, and these things can never be the same for any two people.

For a better understanding, let us look at all these factors one by one

  • Monthly expenses

    Suppose your yearly expenses are about Rs. 5 Lakh. Now, it is usually advisable to go for a 10-15 times coverage of your annual expenses. The reason you should go for a higher cover is that inflation rates will make everything costlier for you and your family in the coming years. To cover your family in the future, you need to calculate, keeping in mind the future prices. So, your estimated coverage should be 75 lakhs.

  • Your liabilities

    It is always advisable not to put yourself in an unfortunate space by piling up debts. If you have debts, include the amount in your coverage for a safer side so that your family does not have to struggle to pay off your debts.

  • Considering major events of life

    Let's say you have two children; you need to consider their education and wedding expenses. Now, even if you invest in other options, there will still be a lot more left. Add that in the coverage.

    These are the things that will help you calculate exactly. But, since these events are so far away in the future, it is difficult to determine the amounts exactly. So, if you think your family can do well with 80,000 a month, you should estimate it as 1 lakh. The more, the better. When you are considering buying a life insurance plan, it is important that you know what type of insurance will suit your needs and what should be an adequate cover. You must know the amount that will be needed to cover the expenses of your loved ones.

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Frequently Asked Questions (FAQs) for Term Insurance

This being a term plan doesn't offer any payout after maturity or expiration date.

Each insurance company has its own term insurance premium calculator. If you want to check out the premium quote, go for the iSelect Star term plan calculator. It gives a premium amount based on your age, gender, habits, education, and annual income.

You can purchase an iSelect Star term plan anytime between 18 to 70 years of age.

It depends on your needs. For example, if you want to cover a child's education or wedding expenses, you have to include them in your coverage. Your premium will be calculated accordingly.

If your key purpose is to give your Family financial protection, go for the term insurance plan. And if you want some savings, in the end, go for a traditional life insurance plan.

Go for at least 12 times cover than your annual income. Or you can go as far as 20 times coverage as per your needs.

The right time is when you don't have anything to keep your Family safe from financial storms, and they rely on you for financial needs.

If you are unable to make the payment or suffering from a terminal illness, a term plan pays a part of the sum insured to treat your disease.

Term insurance riders are attachment or endorsements made, while taking the term insurance policy, as a supplementary coverage to policyholders. Apart from the core death benefit, term insurance riders offer below-given additional benefits:

  • Accidental Death Rider When a person suffers from a terminal illness, his/her family ends up spending a significant amount in treatment and medical expenses. Accelerated death rider pays a part of the sum insured in advance to cover such costs and save the family from running out of cash.
  • Accidental Disability Rider If the policyholder can't pay the premium because of an accident or permanent disability, a sudden disability this pays the premium on behalf of the policyholder till completion of policy term or for a defined duration.
  • Critical Illness Rider If the insured person gets a heart attack, cancer, or any other critical illness, this rider pays a lump sum on valid diagnosis.
  • Premium Waiver Rider If the policyholder is unable to make payments due to income loss or disability, a premium waiver rider waives off all future premium payments. And the term policy remains active until the expiration date.
  • Income Rider: The rider ensures that your family receives regular income + sum insured in case of unfortunate demise of life insured.

Anyone can go for life insurance as it offers some savings after the maturity date, but it doesn't cover the protection of your family . The best term insurance plan is solely designed for taking care of loved ones if something happens to you. Term plans act as a shield between your family and sudden financial fall. They make sure that your family lives a healthy life even after you. With a little amount paid per year, you can be worry-free from the family's financial conditions.

Questions that you need to ask while buying Term Insurance?

  1. 1. Amount of premium you have to pay based on your age, habits, education, and monthly income
  2. 2. The total number of benefits covered in the term plan. Do they include benefits that you care about the most?
  3. 3. How to save money on tax if you pay for the term plan?
  4. 4. Do they offer regular income options?
  5. 5. Can you change the coverage and premium in the future?
  6. 6. Does the claim consider valid if death occurs outside India?
  7. 7. Which kind of death is not covered by insurance?
  8. 8. Can NRIs take term insurance? If yes, what are the conditions?
  9. 9. Does the term insurance plan have a cash value if you decide to cancel the policy?
  10. 10. Under what circumstances can a term insurance plan be cancelled?
  11. 11. Can I pay the premiums online or make electronic payments?
  12. 12. What will happen to the term plan if the life assured starts smoking after purchasing the policy?
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