Krishna is in a state of shock as he heard about the death of her relative Ananya’s husband, Ravi. Ananya, who is a homemaker, is survived by a 3-year old son and does not know how she will be able to make ends meet as her husband was the sole breadwinner of the family. Even the term insurance plan that Ravi had purchased didn’t bear any fruits as he had purchased it at the age of 20 for a term of10 years. And now when at the age of 40, he is no longer there to support his family. Ananya is in the state of distress thinking about her family’s financial future? Also, due to this, Krishna feels the burden as he thinks about his own family having to face a dreadful situation.
And, if you too can relate to this suppositional situation and are feeling the jitters already, then it’s time you get a Term Insurance for a long term now.
Being one of the simplest forms of life insurance plans, term insurance is a low-cost fixed-term contract between the insurer and the insurance company. To make it simple for you to understand, Term life insurance is a policy which requires you to pay regular premiums on the basis of which the company will pay a lump sum amount to your beneficiary on the account of your death. Also known as a death benefit cover, term plans are meant for a specific period of time and can be purchased for a period of 5 years to 65 years. If the policyholder outlives the term, then he/she will have to forgo the premium paid.
Hence, the question-How long should I buy a term plan for arises?
Now deciding the tenure of your term insurance plan leaves you in a bewildered situation as you don’t know how long will you survive? But also, considering the benefits that this type of life insurance plan has to offer, buying it is indeed necessary.
One of the best benefits of term insurance policies is that it offers high sum assured at a lower premium. But because of this, people tend to opt for policies for a shorter term hoping that they will have to pay a lesser premium. And even if you are one of them, then we would say that you are sailing in the wrong boat as you don’t know how buying a short term plan can be one of the most disastrous financial decision you will ever make.
For example, consider this: Ravi, a 30-year old male bought a term insurance plan for a tenure of 5years at a premium rate of Rs. 4,000 and sum assured of 1 crore. His friend Shyam brought the same plan for 35 years at a premium rate of Rs. 7,000 per year. So only at a difference of Rs. 3,000 per year, Shyam managed to secure himself for a long time i.e. 30 years more than that of Ravi.
So what do you think is wise?
If you are still confused regarding the tenure of the term, then you definitely need to read on the below factors and decide
Reasons why buying a short term insurance plan is not a good idea
Long term plans are dirt cheap: Now, let’s understand why you are buying a term plan? Because you don’t have enough net worth for securing your family’s future. So if supposedly you buy a term plan for 30 years, then the premium you will have to pay is Rs. 7,306 per year. So the overall premium that you will have to pay is Rs. 21,91,80 and the sum assured for this is 1 crore, which is quite big as compared to the premium you have paid for 30 years.
Long term plans ensure peace of mind: You know even if down the line in the next 30 years if anything happens to you, then you don’t need to worry about your family’s future as you have already secured a high sum assured for them. So unlike, short term plans, long term plans give you peace of mind and also save you from the hassles of renewing the policy.
Longer the term, lower the premium: Yes, the longer the tenure of your policy the lower the premium rates. Many people look ahead to buy a term insurance policy for shorter period thinking that they will save on the premium and later renew the policy. But this is absolutely wrong as renewal of the policy affects your premium rates and your current health conditions add on to it. But if you take a term insurance plan for a longer period, then you don’t have to worry about premium rates as they remain constant throughout the tenure of your policy.
The higher your age, higher the premium:
Generally, people think of buying a term plan as they enter their 60s thinking that they won’t live longer. But at the age of 60, a policyholder can only insure himself for 5 years as term insurance plans are offered only till the age of 65 years. Also, at the age of 60 if you go to buy a policy, then the premium rates charged would be very high and will be calculated as per your medical conditions and age-related problems.
For example, consider this: If you buy a term plan at the age of 30 for a term of 35 years then the premium per year will be Rs. 7,767. But if you buy a term plan at the age of 60 for 5 years (Remember insurance companies only offer term insurance till the age of 65) then the premium charged per year will be Rs. 45,219.
Hence, short term plans at a much higher age should be avoided as premiums would be high and the coverage won’t be of any use when you actually need it for your child’s education, loans and other financial emergencies, which would be over by the time you reach your 60s.
You will live longer and you already know that
Lastly, an insurance company will not issue you a policy if your chances of survival beyond the age of 40 or 50 are not high. Also, if you are a healthy person, having sufficient funds and have access to good health care facility, then what are the chances of you living above the age of 45 or 50? Extremely high, right? Hence, with this, you already know that you are going to live longer and investing your money in a short term plan doesn’t sound to be a good idea.
Hence, always opt for a long term insurance plan to pay a lesser premium and get your family insured for a much longer time. Also, don’t be like Ravi and don’t leave a question mark as to how will your family function after your survival. Be smart and buy yourself a long-term term plan now.