What Should Be the Duration of a Term Insurance Plan?

A Term Insurance Plan is one of the most affordable life insurance policies offered by most companies. Getting term life insurance helps you secure your family’s financial future in case of any unfortunate event. The tenure for these policies is comparatively shorter than other life insurance plans, and so is the premium amount. However, the benefits offered are aplenty.

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So let us take a look at what it means to get a term life insurance, what should be its duration, and which one is the best for you duration-wise.

Term life insurance- What does it Entail:

Before getting a term life policy, it is crucial to understand what you are getting into. The following are some of the features of term life insurance:

  • Term insurance comes with a specific payment amount in a fixed duration of time.
  • Once a term insurance plan expires, there are no survival benefits. The policyholder has to renew the plan or forego the premium paid.
  • The premium amount does not remain unchanged when a policy is renewed.
  • Term life insurance policies offer stupendous benefits in the event of the policyholder’s death during the tenure of the policy.
  • There are term plans that offer a considerable sum assured in exchange for a minimal premium amount.
  • The nominee for the policy can opt to get a lump-sum payment or payments in installments after the policyholder’s death.
  • Term life insurance policies also offer tax benefits under section 80C of the Income Tax Act 1961.

Thus getting a term life insurance plan comes with several benefits. However, after learning about what a term life insurance is, the next most common question that arises in people’s minds is-“what should be the duration of a term life insurance plan?”

So let us answer that question!

How to determine the duration of a term life insurance plan?

Most people decide on the duration of a term life policy according to the number of years they are financially responsible for their family. However, certain factors can help determine the number of years a person should get the term life insurance. They are:

  • Financial liabilities:

Liabilities are the most crucial factor in determining the duration of a term life insurance plan. For instance, a person has taken a home loan for ten years. Therefore, taking the term life insurance for ten years makes sense since the insurance can help cover the liabilities from the loan in case of any unfortunate event like the policyholder’s death.

  • Affordability:

Even though the amount of premium for term insurances like LIC term plans is not that high, there is still an ever-present question of affordability on the policyholder’s part. For instance, if the premium amount is putting you under too much strain, you can consider shortening the insurance’s tenure and the coverage amount. Doing this can help you to keep a balance between your expenses and not losing insurance cover.

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  • The duration of support expected:

The time of support that is expected from you is the most significant factor in determining your term life insurance duration. For instance, if you have a very young child of about five years, you will need insurance whose tenure covers the time of your child’s education (approximately 15-20 years). You are at liberty to extend the coverage if the need arises.

  • Your current age:

You can get a term insurance policy for the tenure of five to forty years. Now, the minimum age for getting term insurance is 18 years. So if you plan to get the insurance early on, it is best to avail of the policy that covers the maximum duration. For instance, if you are 30 years of age, it is best to opt for a plan of at least 25 years, which will cover you until you are close to your retirement age. If you get a term policy of the duration of 15 years when you are 30, it will only cover you till you are 45 years, after which you will have to renew the policy, which will cost you a lot more than you anticipated.

With these few factors in mind, you can determine the appropriate duration of your term insurance policy.

What should be the duration of your term insurance policy?

Let us consider that you are getting a LIC term plan. Now, there are several types of LIC term plans available in the market. For instance,

  • Plan
  • Maturity Age
  • Policy term
  • Benefits

LIC e-term plan

  • 75 years
  • Minimum- 10 years Maximum- 35 years
  • Offers tax benefits U/S 80C of Income Tax Act
  • LIC Anmol Jeevan II Plan

65 years

  • Minimum- 5 years Maximum- 25 years
  • Offers tax benefits U/S 80C of Income Tax Act
  • LIC Amulya

70 years

  • Minimum- 5 years Maximum- 35 years
  • Offers tax benefits U/S 80C of Income Tax Act

With these LIC term plans, the minimum age of getting insurance is 18 years. So if you get the insurance at an early stage of your life, with a tenure of 25 to 35 years, you can avail the maximum benefits of the plans.

Also, buying the LIC term plans at an early age is a good idea because:

  • A younger person is healthier than an older person. That is why the term plan premium is much lower for a person who is at the prime of their age, rather than an older person.
  • If you take a term insurance plan at an early age, you don’t have to worry about saving money to provide for your family members as you get older. The insurance acts as a back up to secure their future financially.

Thus getting insurance for a longer duration is exceptionally beneficial for a younger person. However, it is best to get a policy for a shorter period for a person who is nearing their retirement age. Since term plans do not offer survival benefits, there is no point in getting a policy for an extended period when you are near your retirement age!