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Term Insurance at Different Stages of Life: How to Select the Right Policy Tenure?

As a rule of thumb, you should always choose for a policy tenure depending on your age of retirement.

Choosing the right policy tenure is tricky. If you choose short policy tenure then it will defeat the purpose of the term insurance plan. On the other hand, if you choose a long policy tenure, you will end up paying more premiums. The important decisions aren’t easy to make. Moreover, when it comes to the term insurance policy, your decision can have a lasting effect on your family.

One such decision is:

How Much Should Be the Tenure of the Policy?

The term plans are offered with policy tenure of 10 years, 15 years, 20 years, 25 years, or 30 years. To find, which the right policy tenure you should choose is, first it is important to understand the need for the term insurance.

You need to have a term insurance plan to secure the financial future of the family in your absence until your family becomes financially independent. This means that, in case of your unfortunate death due, they can still maintain a good lifestyle and all their future liabilities are taken care of. By choosing the right policy tenure, you will be giving enough time to your family to become financially independent. Let’s read further to know how to choose the right policy tenure.

Term Insurance

A term insurance policy can be described as the pure life insurance product that provides life cover to the family of the insured against the risk of the premature or untimely death of the policyholder during the policy tenure.

In the event of the death of the insured, the sum assured amount as the death benefit is paid to the beneficiary of the policy. This sum assured amount is used to take care of the liabilities of the family-like child’s education, repayment of loans, the marriage of the children, etc. in the absence of the policyholder.

The insurance providers provide coverage to the individual for up to the age of 75 years, 85 years, or 99 years. The maturity tenure of the policy varies from insurer to insurer. Depending on the current age of the insurance buyer, the maximum age the insurance company provides for the policy. So the tenure of the policy may vary from 5 years-40 years depending on your choice and your current age.

Factors Affecting the Premium Rate of the Term Insurance Policy

The following are the key factors that affect the premium rate of the term insurance policy. To estimate the premium rate of the policy you can also take help of the term insurance calculator.

  • Age– Age is the major factor that decides the rate of premiums of a term policy. the premium rate of an individual purchasing a term plan at a young age is much lower as compared to the premium of the policy purchased at an older age.

  • Gender– The gender of the insurance buyers also determines the premium amount of the policy. Some insurers offer discounts to women because as per the studies it has been shown that women has lower death risk as compared to the men.

  • Sum assured– The coverage you choose also affects the premium rate of the policy. If you choose a higher sum assured amount then you will need to pay a higher premium for the term insurance policy.

  • Lifestyle- lifestyle habits like smoking and drinking also affect the premium amount of the policy. On one hand, non-smokers can avail of the benefit of premium discounts whereas; one the other hand smokers have to pay a higher premium for the same policy.

  • Payouts– the premium rate of the policy may differ, depending on the payout. If you choose for an increasing sum assured option of the policy then the premium will increases over a period whereas, if you choose the level sum assured then the premium amount will remain the same for the entire policy term.

  • Term– The longer the duration of coverage will be, the higher rate of premiums of the policy will be.

Policy tenure is one of the key factors that determine the premium rate of a term plan. The tenure of the policy depends on how long you want to provide financial security to your loved ones in case of any eventualities.

Normally, the tenure of the policy offered by most insurance providers is between 5 years to 40 years or till age 99 years. As a rule of thumb, you should always choose for a policy tenure depending on your age of retirement.

For instance, if Mr. X plans to retire at the age of 60 years and currently his/her age is 25 years then Mr.X should opt for policy tenure of 35 years. However, the age of retirement may vary for person to person as some people choose to work till the age of 65 - 75 years.

Let’s take a look at what policy tenure you should choose at different stages of life.

In 20s -You can choose a policy tenure up to 40 years or till 99 years of age. While purchasing a policy at a young age of 20 years, you can fix the premiums of the term plan for 40 years at minimal premium rates. It is always advised to choose a longer policy tenure while being young, as with age the responsibilities increases, and so does the dependents.

In the 30s –When you are in your 30es, you can still choose for a policy term of 40 years to 99 years of age. The policy tenure you choose should depend on various factors like, number of dependents you have, how long your liabilities will last, at what age you are planning to retire, etc.

In the 40s –When in the 40s, you can choose a policy term of 30 years-40 years. By 40s, the time frame of the liabilities also reduces.

In the 50s -By the time you hit your 50s, the liabilities are reduced, and mostly the children also grow up and become independent. Thus, at this stage of life, it is wise to choose a policy term of 20-25 years as you will need to pay a higher premium for the policy.

Wrapping it Up!

So by reading the above-mentioned points, here we have mentioned the reasons why you should opt for a longer tenure.

· Premium amounts are generally fixed. Once you purchase the term insurance policy, the premium amount would remain the same for the entire policy tenure.

  • By purchasing the policy at a young age, you can choose to pay a much lower premium and will remain the same throughout the term period.