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?)

It's simple. You should only cover yourself till the age when you plan to retire.


Here's why:


See, your term insurance plan will basically help replace your income to ensure your family is financially protected in the event of your unexpected demise. 


But by the time you retire, it is likely that your dependents will become financially independent. 


By then, you will also most probably have fulfilled all your financial responsibilities like repaying your debts, paying for your child's education and so on, besides acquiring substantial wealth. 


So why should you stay covered longer than necessary? 


Term insurance is anyway not an investment and there's no maturity benefit i.e. you don't get anything if you survive the policy duration. 


Plus, staying covered longer than needed also increases your term plan premium amount. If you invest that extra money that you pay towards premiums for additional policy years, it could give you better returns. 

Unfortunately, yes.


Covering yourself for an unnecessary longer duration will cost you more than it'd have, had you stayed covered only till your retirement. 


That's because you will be staying covered for a longer period and the probability of your death will increase with age. So, it may not be very pocket friendly. 


Find out the factors that can increase your term insurance premium.


Well, it depends on your age of retirement. 


See, as an entrepreneur, you may be working for more years than a typical corporate employee and hence your retirement is more likely to be much later. 


So, you may want to cover yourself for a longer duration. 


Here's something you should keep in mind that will help you understand this:


Term insurance is like a replacement of your income when you are no more. 


Let's understand with an example.


Say, you plan to work till you are 70 and think your family will be depending on your income till then.


In that case, you should stay covered till 70 years of age so that if you pass away during the policy duration, your policy money will help your family avert any financial crisis. 


But, if you think by then, you will have enough corpus, your spouse may have their own wealth accumulated and your children may be financially independent, you don’t need to cover yourself for a longer duration.


Remember, your policy duration should be decided on the basis of your and your family’s requirements; there’s no one-size-fits-all approach that works here. 


It's simple. You should cover yourself till the time your children or your ageing parents or anyone else who is dependent on you financially or for your caregiving will become independent. 


You don't need to pay an extra premium amount by staying covered longer than that.


Find out more about buying a term insurance plan as a homemaker.


See, term insurance is not an investment, but only a replacement of your income. It has no maturity benefit. It will give your nominees your insurance money only if you pass away during your policy duration.


By the time you are 99, your children are likely to be old enough to be financially independent. You will probably not have any major financial responsibilities left to meet. 


So, by covering yourself till 99 years, you will only end up paying additional premiums but not get any maturity benefit out of it. Isn’t it better if you invest that extra amount elsewhere and gain good returns?


So, unless you want to retire at 99 years (seriously, why??), you should not stay covered till 99 years, 


You can opt for a term plan covering you till 99 years if you plan to use it as a means of estate planning, i.e. to provide your family with an inheritance once you pass away. 


But remember, ideally term insurance is used as a replacement of your income when you are no more and not for estate planning. 


Here's why:


Your policy duration, should you choose to use your term plan for estate planning, can be till 99 years of age. The premiums for this long duration will be significantly higher than the ones you pay if you choose to get covered till retirement, say at 60 or 65, because the probability of your death increases with age. 


But your family won't be financially dependent on you for so long. So it’s better if you opt for a shorter duration instead, and pay a much lower premium, while investing the additional amount you save on premiums instead. That will ensure you get better returns and build substantial wealth for yourself and your family. 


If you outlive your term insurance policy, you won’t get anything. See, a term plan does not give maturity benefits i.e. investment that gives you returns. It is just a financial protection tool for your family or loved ones. Your nominees will only get a payout if you pass away during the term policy period. 


But having said this, there is actually a type of term insurance policy called TROP (Term Insurance with Return of Premium). This plan will refund only all the premiums paid if you outlive the policy duration.


Should you buy a TROP plan?


Well, if you think you must get ‘something’ back if you have paid for it, then you can go for it. But remember, thanks to inflation the value of the premiums you will be getting back will reduce over time, so you are not really getting your ‘full money back’.  


Secondly, TROP plans are more expensive than pure term insurance policies and they don’t give any returns. We think instead of getting a TROP plan, you can put the additional money in other investments (such as mutual funds or fixed deposits) which can give you better returns. 


Ideally, treat your life cover as an income replacement and something that can help your loved ones overcome financial problems when you pass away, especially if you are the sole breadwinner. 


You don’t need a complex calculator to calculate your life cover. Instead, use this formula to calculate your life cover:


Life cover = Your Policy Term x Your Current Annual Income* 


*It is the pre-tax annual income that you earn by actively working, aka the income that’ll stop coming in if you’re not around. It includes your salary and business income but not any rental income, interest, and dividend. 


Find out how you should calculate your policy term.