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Life Insurance

What Should Be The Duration Of Your Policy?

The important aspects of any life insurance policy are:

 

  • The sum assured
  • The term or duration of the policy
  • The premium amount

Most of the people focus on the sum assured and compare various policies based on that, and finally select a policy based on the premium amount. But in this exercise, the aspect that often gets ignored is the term of the policy. 

 

Most people think they need insurance till they retire – which usually means till the age of 60 years. So, for example, if you are 35 years old, you would buy a policy for 25 years so that it remains in force till you turn 60 (that is, till you retire). This approach is not right.

 

Think about the number of people who are financially dependent on you currently , and decide for how many years more they would remain dependent on you. Also, think about any financial dependence you might add, and decide for how many years they would remain so. If you have taken some liabilities like a long term loan then for how many years will it continue to be ?

 

Example 1 : If you are 32 years old and have an earning spouse and a son who is 5 years old, you might only have insurance for 20 years, because by the time you are 52 , your son would be 25 and would be on his own.

 

Example-2 : If you are 25 and don’t have a child, you might want to take that into consideration and purchase life insurance for a slightly longer duration.

 

So, there is no fixed answer to the question: What should be the tenure of your life insurance policy? You need to carefully analyze your situation well (read long term goals, needs and any liabilities ) before you commit yourself to a long term policy .

 

Therefore, the term of your life insurance policy should encompass -

  • The years remaining for liabilities to finish;
  • The years remaining for dependency of your family members; and
  • The years left for you to fulfill your long-term goals.

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