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Term Insurance till what age: How to pick the right policy period?

Picking the right policy period is tricky. Too short - and it defeats the purpose of term insurance. Pick too long a period, and you'll end up paying more premiums than you should. But don't worry, we've got all the right answers in this post.

The most critical decisions aren’t easy.

When it comes to term insurance, few key decisions can have a lasting difference to your family.

One such decision is:

How much should be the policy period?

10 years? 15 years? 20, 25, or 30 years? Surely, 40 or till age 99 would suffice. Right? Right?!

If only the answer was so simple - this would be a tweet and not a blog post. :)

To find the right answer, lets first understand why everyone needs a term insurance.

You need term insurance to secure your family's lifestyle, until your dependents become financially independent.

That means if you are not there anymore, they are still able to afford the rent, school / college fees, pay off the loans, and life a comfortable life. That's it.

And there lies your answer. The policy period should be enough to give your family the time to become financially independent.

Let's go in a bit more detail to help you find the right period for you.

Term Insurance

A term insurance is a pure death benefit policy. It provides life cover to the insured against the risk of untimely or pre-mature death during the policy term.

In case of demise of the insured, the sum assured will be paid to the insured’s family. This sum assured will help the dependents to take care of their monthly household expenses, child’s education & marriage, house loan, etc.

The insurance company covers an individual maximum upto the age of 75 or 85 or 99 years. It depends from insurer to insurer. Depending on your current age that would be the highest bar, the maximum age an insurer is providing the policy. So, the term may vary from 5 years to 40 years, depending on your current age and also your choice.

Following are the key factors that affect your term insurance premiums:

  • Age – Age is a primary key factor that decides the premium. At a young age, premiums are much lower than at older age.
  • Gender – Some companies offer rebates to women as studies have shown that the death risk is lower than men.
  • Sum assured – The coverage decides the premium. For a higher sum assured premiums are high.
  • Lifestyle - Non-smokers get discounts on premiums, while smokers end up paying a higher premium.
  • Payouts – Depending on the payouts, the premium amount may differ. If you opt for increasing sum assured premium increases over a period as compared to the level sum assured.
  • Term – The longer the duration of protection, the higher will be the premium.

Term is one of the key factors that determines your term insurance premium. The Policy Term depends on how long you want to provide a financial protection to your family in case of unfortunate eventualities.

Generally, a policy term offered by most insurance companies is between 5 years to 40 years or till age 99. As a Thumb rule, one should always opt for a policy term depending on their retirement age.

Let’s assume, if you are planning to retire at the age of 60 years and your current age is 25 years, you should opt for a 35 years policy term. However, the retirement age may vary for some people who opt to work till the age of 65 - 75 years as consultants.

In 20s - One can opt for a term of 40 years or till age 99. At young age, you can fix the premiums for 40 years at much lower premiums. It is advisable to go for a long policy period when young, as with age the responsibilities increases, and number of dependents too.

In 30s – One can opt for a term of 40 years or till age 99. It depend how many dependents you have, how long you are planning to work till the time you retire and how long your liabilities will last.

In 40s – When in 40s, one can opt for a term of 40 years or till age 99. By 40s, the time frame of liabilities reduces.

In 50s - By the time one hits a half-century, mostly their children are grown up and become less dependent, and liabilities are lower. Thus, it is advisable that one can opt for a term of 25 to 35 years or till age 99.

Let me list down some important reasons why you should opt for a longer term:

  • Premium Rates are normally fixed. Once you buy the product it would remain same for the entire policy duration.
  • At a younger age, the premiums are lower and will remain constant throughout the term.
  • Your insurability for term insurance remains guaranteed for the entire policy term.

For the more concrete answer you can ask yourself these key questions to find the right term

  • How long will you work? Or at what age you will retire?
  • How long your family will be financially dependent on you?
  • Are your parents dependent on you?
  • Is your spouse working, how long she will be working?
  • How long your children will be financially dependent on you? If they are into teens, then consider how long it will take them to be on foot.
  • Gauge the time when your liabilities will end that is, if you have 10 years pending to pay the loan amount, consider that. The most common maturity age for a policy term is 65 to 85 years of age. As per your present age, you can decide the term.