To give your family complete protection, apart from choosing the right sum assured, an important component to be considered is the insurance policy's duration. How long you should be insured for is a vital decision to ensure your family is protected, till the time they need it the most. So how do you decide your policy duration? Here are the factors you would need to consider when making this decision. Just as one size does not fit all, insurance policies too need to be as per individual requirement.
The first thing that you need to do is to make an estimate of your dependents and the number of years of financial support they would require from you. Apart from just including current dependents, also make sure you make provisions for future addition of dependents, if be the case. Your policy tenure should be based on the number of dependents as well as their ages. For example, if you have smaller children below the age of 5 years, you would probably want to consider a 20 year policy, to ensure protection till their education expenses are covered.
2. Commitments and goals
By financial commitments we mean your individual goals and needs. This would include your existing loans, mortgage, expected future expenses towards education marriage, and retirement requirements etc.... Your life insurance policy should ensure, it is in effect till such debts or goals are fulfilled. So, suppose you have a 10 year home loan and assuming all other commitments too would be completed in 10 to 12 years, in such a scenario a 20 years policy would not be required.
3. Cost of policy and affordability
The fact is the longer your policy duration, the higher would be the premium you would have to pay. If you are considering a long term policy, you would have to look into several things. Firstly whether you really need it, and secondly whether you can afford the regular premiums. Giving your family complete protection is definitely a priority. On the other side, it is equally important to ensure the premiums are it is affordable and within one's range. Have a financial plan in place. This helps you allocate resources wisely towards insurance as well as towards regular investments. So in case anything was to happen to you, your family would receive benefits from your insurance policy as well as from your investments. Take a closer look at your current financial situation and you will find the right term for your insurance.
4. Term or whole life?
Insurance requirements vary from individual to individual. Where some individuals may be burdened with debt/loan repayments, others may have sizeable savings and lesser financial commitments. The choice between a term plan and a whole life plan depends on individual commitments. As mentioned earlier, the term of your life insurance policy, should be for roughly the number of years your family is financially dependent on you.
Term plans work out as an ideal option if all that you are looking for is protection for a limited period of time. A very cost effective option, term plans would not give you the scope for a maturity benefit.
If you are looking out for long term protection, opting for a whole life plan would fetch you a lump sum maturity benefit. This option comes at higher costs, but comes in handy, if you are seeking a corpus at retirement.
There are no perfect solutions.....
There are no perfect answers to what exactly your life insurance plan duration should be. A general practice recommended by many experts is to ensure your premium paying period is within your working years, so that it does not become a burden in later years. Keep in mind that insurance policies get expensive as you enter your 40s. And if you have started your family late, your insurance requirements may well cross your retirement age. Thus, carefully analyze your situation before deciding on a tenure for your policy.
The author is the CEO of MyInsuranceClub.com, an online insurance price & features comparison portal
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You may write to the author at Deepak@myinsuranceclub.com