What should be the Duration of my Term Insurance Plan?

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The two key factors to consider, while buying term insurance are the cover amount (sum assured) you require and the duration of the plan (tenure).

The rule of thumb is that the cover amount should be at least, ten times your annual income. Alternatively, you can compute the same using this formula:

Income * Working Years = Protection Cover.

Here are the key factors to consider while deciding the duration of a term plan:

1. Age: The duration available to you for your term insurance plan depends on your age. The Max Life Online Term Plan Plus, for example, offers a 30-year-old a tenure of up to 50 years, while a 50-year-old is offered only 35 years. Therefore, the younger you are, the longer the tenure available.

2. Liabilities: If you have debts to be paid, your term insurance cover should be equal to the outstanding loan amount and the duration should be equal to (or more than) the balance EMI duration. Hence, even in case of your early death, your family is not burdened by the loan, and the insurance proceeds will help them square off the liabilities.

3. Financial Goals: As a family, you will have several financial milestones to achieve and goals to meet. You can coincide the duration of the term plan with these important milestones so that even in your absence, your financial responsibilities are fulfilled by the sum assured that is paid out.

4. Maximize The Duration: As a thumb rule, opt for the maximum term insurance duration available for your age and profile. So, as a 30-year-old, even if you foresee the need for life insurance for just the next 30 years, you should still opt for a 40-year tenure. This is because financials can be uncertain. If at the age of 60, you decide to avail insurance for the next 10 years, it might not be available. On the other hand, if, at 60, you decide to discontinue, you can always do so without any penalties.

Another key deciding factor is affordability. The longer the tenure, the lower is the premium. Hence, consider your current savings and cash flow and evaluate if you can start and continue to pay the premium comfortably, for the entire duration.

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