Decide The Right Life Insurance Coverage Period: An Important Decision to Purchase Term Life Insurance

Purchasing a life insurance policy is a crucial decision. It is a mature step to ensure your family is financially secure if something happens to you. However, despite its importance, only 3% of the Indian population has invested in life insurance.^[1]

If you’re planning to purchase a life insurance policy, it’s essential to do thorough research and analysis. To ensure your family gets the maximum benefit from your term life insurance, you should be aware of the primary aspects of your policy coverage. Apart from assured cover amounts and monthly premiums, you must select the right policy coverage tenure. 

Wondering what is the significance of life insurance tenure? Read this article to find out the best way to determine your ideal tenure length. 

Why Should You Consider The Policy Tenure ?

Usually, when someone purchases term life insurance, their primary focus is on the coverage amount and the cost of monthly premiums. While these parameters are important to compare different policies, it is equally crucial to consider the life insurance tenure. 

Here is why policy tenure plays an important role when purchasing term life insurance: 

1. Strategic planning: You should plan your life insurance tenure to align with your life’s significant milestones. Events like marriage, parenthood, child’s education and marriage, and retirement should be ideally covered in the insured period. 

2. Policy suitability: Not all insurance policies are meant to be held for a lifetime. Some policies help with short-term risk mitigation, while some can be used with the added benefit of income generation. The tenure of the policy plays a vital role in such situations. 

3. Impact on premiums: Your premium costs are directly related to the tenure of the policy. For example, if you buy a policy at an older age, the higher premium cost can get overwhelming if taken for a longer tenure.  

Factors To Consider Before Choosing The Insurance Tenure

Before you choose your life insurance tenure, make sure to consider the following factors:

1. Age: Young individuals typically enjoy lower premiums for higher coverage amounts. Hence, they should seize the opportunity for a longer insurance tenure. 

2. Family dependents: Your family situation will also influence the policy duration. If you are the sole breadwinner, you must consider a term life insurance tenure that will last until your children are financially independent. 

3. Ongoing liabilities: Term life insurance can protect you and your family against ongoing debt and liabilities. So, when choosing the tenure, it is better to opt for an insurance period that is at least as long as your loan duration. 

4. Future goals: Life milestones such as children’s education, marriage, and retirement should be factored into your tenure decision. 

What Is The Ideal Tenure Length For You?

Honestly, there is no one-size-fits-all answer to this question. Every individual has unique needs and financial requirements, so the ideal insurance tenure will vary from person to person. 

However, to get a rough idea, let us take the example of two individuals: Rohan, a banker in his 20s, and Amit, a software developer in his late 40s. Fresh into his career, Rohan has almost zero liabilities and a focus on long-term financial planning. For him, opting for a longer tenure can be cost-effective. With lower premiums and extended coverage, his long-term life insurance will be able to adapt to some significant life events, including marriage, parenthood, and future financial liabilities.

On the other hand, Amit’s focus will be completely different. With a family to support, ongoing loan/mortgage payments, and approaching retirement, Amit might want to secure coverage that spans the crucial years between 50 and 70. Hence, an insurance policy coverage that lasts until retirement or till his children are financially independent would be ideal. 

From the above two examples, you can see that a long-term policy tenure is usually beneficial if you are young. However, with increasing age and premium costs, opting for a tenure that only lasts until retirement is better.

Key Takeaways

The terms of a life insurance policy should reflect your needs and wants. With every individual having unique requirements and situations, it is impossible to quote a fixed tenure for everyone. Ultimately, your life insurance tenure should be determined after carefully considering your goals, liabilities, and family responsibilities.