Tuesday, 12 July 2022

How long do I need life insurance coverage?

Life insurance can offer your family members the necessary funds to live a financially secure life in your absence. While choosing the right plan is crucial, it is also important to ensure choosing adequate coverage.

Picking a life insurance cover that has a smaller coverage duration or policy term, may prove inadequate in case an unfortunate event occurs after the policy term is over. Likewise, choosing a term policy which offers a longer coverage duration can result in you paying a higher premium amount.

It is thus essential to understand not only the right amount of cover, that you need but also the correct coverage duration that will provide adequate safety required for your loved ones. Buying a life cover that is just apt for your needs is essential to address both these concerns. But how do you decide on a good plan with the right coverage term? Let’s find out.

How to pick a suitable life insurance cover?

Different people have different needs and will be at different stages in life. Keeping this in mind a few factors will go a long way in helping you pick the ideal life cover.

What is your age?

Your age will largely determine the kind of cover you need. When you are younger, let us say at the age of 30, you would like to have a financial security cover for your family for a longer tenure, just to cover any eventualities. At such a time, it may be prudent to consider, a life insurance plan with a term of at least 30 years. On the other hand, if you are close to 60 years of age, you and your loved ones may soon need to have a substitute for your income.

Age can thus play a large role when considering a life insurance plan as a financial backup for your loved ones.

Do you have any loans/ liabilities to take care of?

Large asset purchases, maybe for a business, a house or a car may entail people to avail of a business, housing or a car loan. Until the loan or liability is paid off in full, there will be an element of risk, if one can’t pay for it, for any unforeseen circumstance. This is where life insurance plans are a must-have as they can help provide for your loved ones against your liabilities.

In the unfortunate event of the demise of the policyholder, the payout from the life insurance plan can help the family against your liabilities. This ensures that your basic asset like your house is not repossessed so that your family always has a roof over their head.

What’s more, an adequate life insurance plan may go even further than just providing against your liabilities and help provide your family to continue with their existing lifestyle without having to make any compromises.

Thus when selecting the policy term, keep in mind the tenure of your loans. As a thumb rule, do keep in mind that if you have a loan with a tenure of 20 years, it is advisable to have your life insurance policy’s term at least of 20 years or more.

What about your dependants?

As a family, people who can be considered as dependants may include, aged parents, your spouse and children. While selecting a life insurance plan, it is important to keep in mind the needs of all dependants. For example: when your children are very young, say under the age of 5 years, you would want a financial safety net for them for at least 15 to 20 years. At least till the point they finish their education and can take care of themselves. If your children are older and close to being self-sufficient, you may want to look at retirement plans that may help you in your golden years.

Then there may be other scenarios, where one may want to be able to provide a financial safety net for their loved ones, for as long as possible. Consider, someone who may have their parents dependent on their income. Consider a couple who may not have kids, where one may want to ensure financial security for his/her spouse and parents, in the event that they may not be around. Also, if someone has a child who needs special attention and care, such individuals would want to ensure that the financial needs of the child are always met. In such situations, one can consider a term plan with a relatively longer policy term.

Premium and coverage of the insurance plan

There are various types of insurance plans built for specific purposes and goals. Pure term insurance plans offer financial protection for the family. On the other hand, other plans like ULIPs, retirement and savings plan, offer a combination of financial protection and investing for future life goals.

There are also riders, like critical illness cover, accidental death benefit, and disability benefit, that can be added which will improve coverage of the insurance plan.

It is best to choose a plan that will match your requirements and also be affordable when it comes to the premium.

Important things to remember when selecting life insurance plans:

Life insurance policies are inexpensive when you are young. So, it may benefit you to pick a long life insurance cover now than buy it later when you are older.
It can help to discuss matters with your family members and understand their requirements before picking a life insurance plan.

To sum it up

Life insurance is a safety net that every family needs. However, the efficacy of this net depends on the answers to a few questions –