What Should Be the Duration of Term Insurance Plan?

Term insurance policies are standard life insurance policies that offer life coverage for a fixed duration or ‘term’ stated by a policyholder at the time of purchase. However, one crucial question that often arises is: What should be a term insurance plan?

Choosing the right term length is vital because it determines how long your family will have financial security. If the duration is too short, the policy might expire before your financial obligations are covered. If it is too long, you may end up paying higher premiums than necessary.

This article will explain everything you need to know about selecting the right duration for a term insurance plan and the factors you must remember while choosing insurance tenure.

Term insurance is a pure protection plan that provides coverage for a fixed period. If the policyholder passes away within this period, the beneficiaries receive the sum assured. However, if the policyholder survives the term, no benefits are paid unless it’s a return-of-premium plan.

The duration of a term insurance plan can range from 5 years to 40 years, depending on your unique financial situation, family needs, and long-term goals, or up to a specific age, such as 60 or 75. The ideal duration depends.

A simple formula to determine the right term duration is:

Retirement Age - Current Age = Ideal Term Duration

For example, if you are 30 years old and plan to retire at 60, your ideal term duration should be 30 years. Alternatively, you can assess major financial responsibilities and choose a term to cover them.

While longer terms have higher monthly costs, they typically offer better lifetime value by locking in rates based on your current age and health status.

Choosing the duration of term insurance is an important task when opting for the policy and it depends on your circumstances and financial goals. Shorter terms are ideal for those nearing retirement with minimal liabilities. 20-25 years term suit middle-aged individuals with children or existing loans. 

Longer terms are best for young professionals starting their careers and families. Assess your needs and choose a term that aligns with your life stage and financial responsibilities, focusing on your retirement age.