What shall be the suitable Term of your Life Insurance Policy?
What is a life insurance policy? Why is it popular in India? How does it function? Why is term life insurance policy in demand? These are quite common questions about the concept of life insurance.
Life insurance policy is a contract between the insurance company and the policyholder wherein the insured is liable to pay a fixed premium amount. In return, the insurance company provides a fixed coverage amount to the designated beneficiary, upon the demise of the policyholder.
Life Insurance policy is one of the most popular policies in India because of the large number of single breadwinners in the country. The high number of dependants increase the responsibility of the sole earner, which makes him/her think about the importance of Life Insurance. God forbid, in case of an unfortunate mishap, how will the family survive? In such a scenario, life insurance policies work as a financial guard for your loved ones. It gives them the freedom to continue their lifestyle even in your absence that too without thinking about the financials.
There are plenty of life insurance policies available in the market. Still, term life insurance policy is one of the most affordable plans, which offers you similar death benefit as any other life insurance policy but at the lowest premiums. Affordability of term insurance makes it more popular among the people of India.
As its name suggests, it only works for a pre-decided term and posts that period all the conditions and benefits get null and void. However, a lot of people get confused thinking about the importance of opting for the right tenure for their term life insurance policy and how they can do it. Although there are several factors which impact the policy term and coverage amount; however, there are three significant factors that one should keep in mind before finalising the duration of the policy – age, number of dependents, and liabilities. So, let’s discuss the three crucial considerations:
- Age: Age plays a vital role in determining the term of the policy. Generally, insurance policies provide coverage until the age of 70 years, but in a few policies, it can go up to 80 years and even beyond. And the premium amount will automatically increase with a more extended term of your life insurance policy. Therefore, if you are below the age of 40, then you must opt for the longest available term so that you can live freely without worrying for your family managing their expenses in your absence. But in case you are above the age of 40, then you must go for a lower term of your insurance policy, the reason being till the time your policy term will expire your dependents will no longer be dependent on you. So instead of paying the premium of insurance policy, you can invest it somewhere else to earn a better return on investment.
- Number of Dependents: Number and type of dependents are also crucial while choosing the term of the life insurance policy. If you have a high number of dependents and most of them are incapable of earning in the future, then you must adopt the highest term. But in case you have fewer dependents, that too your children who are studying and soon will be self-dependent, then you can opt for a term till your children complete their education and marriage. This will save your hard-earned money, and you can enjoy the days of your retirement with ease.
- Liabilities: You must keep your present as well as future obligations into consideration while planning the term of the life insurance policy. You must ensure that policy term shouldn’t expire in between of any on-going liability, such that in case of any mishap your family may not go out of funds because of debts. If you have fewer responsibilities, then you can opt for a shorter term and vice versa. In the case of various liabilities, you must choose for a term which is sufficient to finish all the debts. These liabilities could be the education of your children, their marriage, home loan, car loan or any other credit card loan etc.
Deciding a term could play a crucial role in your buying decision of term insurance plan because policy term impacts the premium amount as well as coverage amount.
Hence, it is always advised to consult with an expert on the term of the policy before making a buying decision of term life insurance policy. Else you can also keep in mind the pointers mentioned above. You can visit BimKaro.in and register yourself to receive a call from our insurance experts for better clarity.