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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?)
Simple: You should always opt for a term plan with higher cover but lower duration. Let's understand with an example:
Say you have the option of choosing from a term policy with ₹ 2 crore cover till 65 years and another one with ₹ 1 crore cover till 85 years.
What do you choose?
The right answer is a term policy with ₹ 2 crore cover till 65 years. This option is always better because it gives twice the cover and is actually for the policy duration you should have a term plan for.
You may be tempted to opt for the other option because of longer coverage and lower premium.
But you should not prioritise these factors. Here’s why:
You’ll probably retire by 60-65 years
By then, you'll have acquired enough wealth
Even your kids are likely to be financially independent
So beyond 65 years, you don’t need to stay covered because you’ll have met most of your financial responsibilities. So why pay a higher premium for an unnecessarily long policy duration?
Also remember, thanks to inflation, the value of a ₹ 1 crore will be peanuts by the time your family gets it.
Your life cover should be adequate for your family’s financial needs in your absence, otherwise you will be underinsured.
Use this simple formula to calculate what life cover you should opt for when buying a term plan:
Your Life Cover = Policy Term x Current Annual Income
The right policy term will ensure you are covered exactly till you need to be and you don’t end up paying extra premium.