A term insurance policy commonly referred to as a pure protection policy provides financial security to your family against death. In the event of your unfortunate demise during the policy period, the insurance company pays the death benefit to the nominee. However, if the policyholder survives the policy period, there is no payout.
Today, many insurance companies offer a wide variety of term insurance plans. And, with online services provided by insurers, while term insurance investment has become easier, several people find it challenging to choose the right policy. One of the common problems people faces is selecting the correct term or tenure for their policy.
If you choose a long-term plan, it can be an unnecessary expense. And, if you choose a short-term plan, it may cause financial distress to the family because of your untimely demise. Experts suggest that the ideal duration for a term plan may differ for different people; it depends on their financial situation and needs.
So, how do you choose a suitable tenure for term insurance? We list down a few vital factors that you must consider before making the decision.
Assess your liabilities
When buying a term plan, it is pivotal to take your time and assess your current financial situation and list down the liabilities you may have. This could include, home loan, personal loan, business debts, credit card bills, etc., that you are obliged to pay over a period. Once you know the exact number, you can choose the term plan duration equal to or more than this time frame.
Let us understand with an example. Suppose if you have availed of a home loan, and you still have ten years of repayment, then it is better to choose a term insurance policy for at least ten years or more. This will help your family pay off the debts even if you are not around.
The financial status of dependents
Another critical factor to consider while choosing the term plan tenure is the number of family members who are financially dependent on you. If your family members have still a few years before they can be financially independent, then it is advisable to choose a long-term plan so that they don’t face any financial hassles in your absence.
On the other hand, if your family members are already financially independent, you can opt for a short-term plan. This way, you can invest the amount in a retirement scheme or other investment plans that yield better returns and secure your post-retirement life.
Premium affordability
If you are looking to purchase long-term term insurance, you must be ready to loosen the wallet strings and pay a higher premium. But, longer policy tenure also means that your family gets protections for a longer period.
But, if you are starting your career or are involved in a profession where you don’t have a stable income and cannot spare enough cash to pay the premium, you can opt for a short-term policy. The premium for such policies is more affordable.
Final Word
Remember, the primary objective of buying term insurance is to give your family financial protection against the uncertainties of life. So, generally, it is better to purchase a long-term policy so that your family gets the protection for a maximum period.
