Term Insurance Isn’t Forever: Knowing The Right Exit Point

• Term insurance protects income during earning years with financial dependents

• Consider exit when assets reach 10–15× income or 25–30× expenses

• Term cover less relevant after debts cleared and dependents become independent

• Term insurance is pure risk cover, not lifelong savings or investment tool

Term insurance is a crucial part of one’s personal finance planning. However, term insurance is only important in certain stages. When you do not have dependents, term insurance may not make sense.

Exit After Financial Stability

“The amount of savings and investments needed before dropping term cover varies, but a common benchmark is having assets worth 10-15 times your annual income or 25-30 times your annual expenses to achieve financial independence,” says Pradeep Funde, senior vice president, Anand Rathi Insurance Brokers.

This should cover all debts, ongoing expenses, and retirement needs after subtracting liquid assets from total obligations.

Term insurance can be discontinued once the primary reasons for buying it no longer exist. This can typically happen when children are financially independent, major liabilities like home loans or education loans are cleared, and there is enough wealth built to support the family; this is when continuing a term plan may no longer be necessary. “For many individuals, this tends to be around the late 50s or early 60s, though it varies from case to case, and the right timing depends more on financial readiness than age alone,” says Sarita Joshi, head, health and life insurance, Probus.

Term insurance can be reconsidered when your accumulated savings and investments are sufficient to replace your income for the family and meet long-term goals. This should include a solid retirement corpus, emergency savings, and adequate health insurance so medical costs don’t derail finances. If your family’s lifestyle and future goals are well covered without depending on an insurance payout, continuing the cover may no longer be essential.

Protection For Earning Years

Term insurance is meant to protect income during the years when dependents rely on it the most. “Once those dependencies reduce and financial stability is achieved through savings and investments, term insurance no longer needs to continue for life. It’s essentially a protection tool for earning years to cover financially vulnerable phases of life and not to function as lifelong protection products,” says Joshi.

Yes, term insurance is primarily designed for income replacement during your working or dependency years, such as while raising children or paying off debts, rather than providing lifelong protection like permanent policies. It’s meant for temporary coverage of financial responsibilities and expires after the term without building cash value.

“In other words, term insurance serves as a pure risk-cover tool focused on income replacement during active earning years, covering dependents and liabilities. It is not intended for lifelong protection and carries no savings or maturity component,” says Funde.