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Should you buy a policy covering you up to 99 years?

10 Oct 22      |       | ShareShare Share Blog Or copy link Copy Share this link via

Authored by: Anurag Ainapurapu
Reviewed by: Krupa Kenia

The Long Read


Everything you *need to know* is right above this. Scroll down, only if you'd still like to read more (honestly, why?)

We know it sounds like a great plan because you will be covered for a very long period and your risk of dying increases as you age. But it may not be a good idea entirely. Here's why:

  • You may not even need such a long coverage

  • It is quite expensive to stay covered till 99 years

Simple! See, a term plan acts as a replacement for your income, taking care of your family if you can't be there to meet their financial needs. But, by the age of 60-65 years, you are likely to have fulfilled most of your basic financial responsibilities such as home loan repayment, child’s education, elderly care and so on. Your dependents are also highly likely to have become financially independent by then. This reduces the importance of your term insurance! Also, since this is not an investment, you won't get any returns on the money you pay as premiums if you outlive the policy period. 

 

Even if you have opted for a TROP (Term Return of Premium) plan, you’d get only your premiums back at the end of the policy period. By which time, the value of your premium amount will already have significantly reduced, thanks to inflation. 

 

Yes. The probability of your death increases with age. So if you buy a term plan covering you till 99 years of age, you will naturally end up paying a higher premium. 

 


Find out the factors that can lead to a term insurance premium increase.

Simple. You should opt for a term insurance plan covering you till 99 years of age only if you are planning to use your term plan for estate planning i.e. to pass down an inheritance to your family after your demise.

 

Your term plan payout is anyway tax exempt*, even under the new regime and even if your premium amount is more than ₹ 5 lakhs annually. This means your family will get the entire lumpsum life cover amount without any deductions - a large inheritance indeed! Since your policy period is quite long, the probability of your passing away during the policy duration is also high. Result? Your family is highly likely to get a guaranteed payout.

 

But remember, your premium amount will be significantly high for a policy that covers you till 99 years of age. You also need to make sure your term insurance claim is not rejected because what’s the point of staying covered for so long if your family can’t access your policy money?

 

Find out under what circumstances your term insurance claim can get rejected.


*Tax benefits & exemptions are subject to conditions of the Income Tax Act, 1961 and its provisions and tax Laws are subject to change from time to time. You are requested to seek tax advice from Chartered Accountant or personal tax advisor with respect to personal tax liabilities under the Income-Tax law

Here’s why you should only cover yourself till your retirement. By the time you retire: 

 

  • You would have met most of your financial goals 

  • Your dependents would have become financially independent 

  • You would have created enough wealth 

 

Additionally, staying covered for an unnecessarily long policy duration can result in high premiums. 

 


Find out more about why you should only cover yourself till you retire. 

Simple. You should cover yourself till the age when you’d like to retire or when your loved ones will no longer be dependent on your finances. Being an entrepreneur, you may want to retire a little later than salaried employees. If you plan to work till 75 and feel your family will be depending on your income till then, you should stay covered till 75. It depends entirely on your life plan and your family’s requirements. 

Simple. Opt for a term plan with higher cover but lower duration. The example below will explain why.
 

Let’s say you have two options to choose from - a term policy with ₹ 2.5 crore cover till 60 years and another one with ₹ 1.5 crore cover till 80 years. Which one will you choose?
 

Well, you should choose the term policy with ₹ 2.5 crore cover till 60 years because it will pay your family a substantially larger policy money if you pass away during the policy period. The policy period is also the right duration you should choose for your term plan, provided you are retiring at 60. 

 

The other option gives longer coverage and charges lower premium because of the lower life cover. So it sounds good, right?
 

But you should not prioritise these factors when making a decision. Let’s understand why:
 

  • You’ll probably retire by 60-65 years 

  • By then, you're likely to have built a substantial nest egg

  • Your children will probably also become financially independent by then
     

So beyond your retirement, you don’t need to stay covered because most of your financial responsibilities will be over by then. So, don’t pay a higher premium for an unnecessarily long policy duration.

 

Find out more about choosing a policy with high cover and lower period or low cover and higher period. 

Well, that depends. If you are someone who feels they should get something back if they have paid for it, then you can. Buying a TROP plan will refund only your premiums, if you outlive the policy period. 

 

But think about it - 

The probability of you outliving a policy that covers you till 99 years is low. TROP plans are typically more expensive than normal term plans. So a TROP plan covering you till 99 years will charge a very high premium. Do you really want to pay a high premium for such a plan if the chances of you living beyond 99 years is low?

 

You are better off investing that additional premium amount in other financial instruments such as mutual funds or FD that can give you better returns. And while we are on the subject of returns, understand this - a TROP plan only refunds your premiums and nothing else. By the time you get that money, its value will have reduced over time, thanks to inflation. So technically, you are not ‘getting your full money back’.

You can if you have purchased a zero cost term plan. It is a type of term plan that allows you to exit the policy at a pre-decided point of time before the policy tenure is over and get back all the premiums you paid (minus GST). So if you have a zero cost term plan that covers you till 99 years of age, you can exit the plan at say, 75 years, provided your insurer approves the time of exit. For a normal term plan, if there is a strong need for you to exit, you will have to cancel the plan.

Some riders, such as the accidental death benefit rider, may cover you for the entire policy duration while some like the critical illness rider may cover you only up to a particular age. So, it is best to check with your insurer to understand till when you will be covered by your rider.

No, it wouldn’t make sense for you to get covered till 99 years. If you are a homemaker, you should only get covered till the age you feel your loved ones will depend on you for your caregiving.

 

For example, as a stay-at-home parent, you should choose your policy tenure depending on the life stage of your child. So you should stay covered till your child becomes a responsible adult. Remember, as a homemaker your life cover amount will be significantly lower than that of a spouse who is earning a salary. So staying covered for an unnecessarily long time will just make your premiums more expensive for a low life cover. 

 

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