With term life insurance policies you have the flexibility to choose how long your coverage will last. But do you know how to determine that?
In this episode, Anmol discusses few situations that you might be in as you decide on the best length for your insurance policy.
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Disclaimer: This podcast is for educational purposes only. Anything said should not be construed as advice.
In the last 2 episodes, I talked about what is the purpose of Term Life Insurance and how much Term Life Insurance coverage you need.
Today I will talk about for how many years or till what age you need a Term Life Insurance.
Let's take three cases for this.
Case 1 - We will talk about Mr. X about whom I had also mentioned in the last episode. Mr. X has two kids who are going to be his financially dependants for the next twenty years. Let's consider Mr. X is currently 30 years old. This means until he reaches the age of 50 years, his kids will remain financially dependent on him. So, if Mr. X dies in between 30 and 50 years of his age,then the kids will financially face a lot of problems.
Therefore, at least till the age of 50 or at least for the next 20 years, Mr. X needs a Term Life Insurance.
Suppose, Mr. X has planned to earn till 60 years of his age, he has planned to retire at the age of 60. So when he will earn from 50 to 60 years of his age, his children will not be financially dependent on him. So he doesn't really need Term Life Insurance from 50 to 60 years of age.
Case 2 - Lets consider, Mr X has a spouse who is financially dependent on him and she is 30 years old.
Now his spouse is going to be dependent on Mr. X for the lifetime. If we consider his lifetime as 90 years, then for the next 60 years, Mr. X's wife will be financially dependent on him. So does this mean Mr. X should take a Term Life Insurance till 90 years of his age, if that is possibly available?
Not really, because, when Mr. X will retire at the age of 60, from 60 to 90 years which is his lifetime, he and his wife will spend the money that he has already saved till 60 years of his age. He might have saved some money and invested so that he can use it after his retirement. So if something happens to Mr. X after the 60 years of his age, then his wife will still have sufficient amount of money to bear the expenses. because that money has already been saved till the 60 years of her age.
So in this case, Mr. X should take a Term Life Insurance till his retirement, till the age he is actively earning, i.e. till 60 years of his age. This is because, if something happens to him before 60 years of his age, then there will be a shortfall in the investments he was making for his retirement. Due to which his wife might require some additional amount of money. So after 60 years, he doesn't really need a Term Life Insurance because he will have earned all the money by then.
Case 3 - Mr. X's parents are financially dependent on him. Let's consider his parents are 60 years old. And for the next 25 years, they will be financially dependent on Mr. X. So this case is very similar to Case 1. When his children were financially dependent on him for 20 years, we had taken the Term Life Insurance policy till 50 years of his age. So if his parents are going to be financially dependent on him for the next 25 years, then 30 which is Mr. X's current age plus 25 years which means, Mr. X needs to take a Term Life Insurance policy till minimum of 55 years of his age, so that if something happens to him during this time, the expenses of his parents can be easily borne.
In all these three cases, the maximum age till when you require a Term Life Insurance, is your retirement age. In few cases, it can end before the retirement age.
In few cases, you can also take a Term Life Insurance till 50 years of age, even if you earning till the age of 60 like the example that we had taken in the first case, there was no financial dependency from 50 to 60 years of his age. But the maximum dependency can be until the age you're earning. Post that nobody is going to be financially dependent on you because by that time you have earned all your money for the lifetime and all your financial obligations have been fulfilled.
So your retirement age is the maximum age till when you require any kind of Term Life Insurance coverage. So I hope, guys, I have made myself clear and please do hit the subscribe button to stay updated with the upcoming episodes.