The basic purpose of term insurance plans is to provide financial protection during the working lives of people
The term insurance plan is the purest form of life insurance because it only covers the risk arising from premature death. A term plan works in the simplest way – In the event of death during the term of the policy, the nominees get the death benefit while upon surviving the term of the policy, the policyholder receives nothing . The premium paid in a term plan is entirely devoted to covering risk or the cost of mortality and hence these plans are low cost, high coverage insurance plans. This means that by paying a low premium, you can buy a high sum insured (life cover) in a term plan.
If you have dependents financially, purchasing term insurance for an adequate sum insured is always recommended as the first step when developing a financial plan. Once purchased, it ensures that financial goals as they arise at different life stages are met by surviving family members if the breadwinner (policyholder) is no longer .
Goals such as raising children, getting married, buying a house, etc. are usually achieved at an individual’s specific age. While one saves to meet them as they arise, buying term insurance ensures they won’t go off the rails if the breadwinner dies prematurely. These life goals are usually achieved at retirement or around age 60.
So, should you take out term insurance up to age 60 or for a longer period? Some insurance companies also offer whole life coverage. “The fundamental purpose of term insurance schemes is to provide financial protection during the working lives of individuals so that in the event of an unfortunate death during that period, their earnings can be replaced and the family’s standard of living will not be adversely affected. not compromised.
For most individuals, who are employed and will retire at age 60, a term plan covering them until age 60 may be sufficient. However, self-employed people running businesses may want coverage for longer terms, as their productive years can go well beyond age 60,” says Akshay Dhand, Appointed Actuary, Canara HSBC OBC Life Insurance.
“Given the increase in longevity and income horizon, there is a need to view the pure term protection scheme not only as income replacement, but also as a form of inheritance planning. With changing lifestyle and longevity, long-term cover helps with income replacement and estate and estate planning requirements,” says Sanjay Tiwari, Chief Strategy Officer, Exide Life Insurance.
But, if you’re using it for legacy planning, it might not always serve the purpose. “On the other hand, if a client survives beyond age 99, the policy will terminate on the 99th birthday or the policy anniversary will apply immediately after the 99th birthday and no further coverage will be provided by the policy/ given insurance company. “, informs Dhand.
The main purpose of term coverage is to ensure that financial dependents are able to maintain their standard of living and achieve various life goals. Around age 60, if you have enough accumulated corpus and net worth that can support your family for another 3-4 decades, the need for temporary coverage may not be there. “If the additional premium for purchasing coverage for longer terms is not as large as the premiums for shorter terms, it may be a cost-effective proposition to obtain coverage for a longer term,” suggests Dhand.
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