Summary of this article
Term insurance is the purest form of life insurance for financial planning.
The right policy term should align with dependents’ needs and retirement age.
Longer-term coverage (till 80/99) suits those with late retirement, debt, or lifelong dependents.
Limited pay term plans can be used for wealth transfer or extended cover.
Term plans are the purest form of life insurance and are an essential part of financial planning.
Term plans are available with a host of premium paying term and policy term combinations to choose from. A good way to think about term-insurance duration is to match the policy period to the years in which one’s family or dependents would truly require financial compensation, if one were no more.
Align Coverage With Your Family’s Financial Needs
“The goal is for coverage to end when you no longer have outstanding financial obligations or income to replace for your loved ones. Your realistic retirement age would be the minimum benchmark, and it would be wise to build in some buffer for adverse outcomes,” says Bhavna Verma, chief and appointed actuary, IndiaFirst Life Insurance.
The “right” sum assured is the amount that replaces the economic value of your life. Ideally, one should do a bottom-up calculation to assess the needs and aspirations of all dependents at least over your working lifetime. “This will include, but not just be limited to, living costs, children’s education costs, spouse’s retirement needs, parents’ medical needs, and any uninsured outstanding loan obligations,” says Verma.
When Longer-Term Coverage Makes Financial Sense
Whether a “till-age-80/99” term plan is smart or just an expensive comfort blanket depends on why you’re buying life cover. Term insurance is meant to replace income or pay off obligations if one dies while others still depend on one’s earnings. It can make sense if you are planning a late retirement, have long-term financial dependents, or debt beyond retirement age.
Opting for a longer-term plan makes sense if you expect financial dependents or ongoing responsibilities even after retirement, or if you anticipate special circumstances. “Otherwise, paying extra for extended coverage often leads to unnecessarily high premiums with limited benefits, as income replacement is no longer required and medical risks are typically managed by health insurance plans,” says Sarita Joshi, head, health and life insurance, Probus.
If one has higher affordability during their peak working years, limited pay term plans are a good option where cover duration can be extended to the specific needs of the dependents rather than one’s own retirement.
“Limited pay term plans for whole of life offer an excellent tool for transferring wealth to the next generation in a tax-efficient manner, if that is the objective.
However, if one has an adequate retirement corpus and/or no dependents after retirement age, a longer-term plan may not be required,” says Verma.
