What Is a Policy Term?

People have different financial goals and needs. Some prefer Term Insurance, which covers them for specific periods like 10 or 20 years, while others favour whole life insurance plans, providing coverage for their entire life. 

• Take the example of Raman, who bought a Term Insurance cover of Rs. 50 lakhs for 35 years. He passed away in the 30th year. In this case, the insurer paid Rs. 50 lakhs to his nominee. In this case, even if the policy term was not complete, the nominee got paid.
• Take the example of Preetha, who had taken an Endowment Plan with a policy term of 20 years and the payout option as a lump sum at the end of the term. If Preetha survives the policy term, she will get the payout after maturity.

One of the most important things the policyholder needs to think about is age. Some policies, such as pension savings plans, have a shorter policy term. The best thing about Term Insurance is that policyholders can start whenever they want. But, if they start in their twenties, they can have a policy for up to 40 years and enjoy better benefits.
 

Your expected retirement age influences how long you'll need income protection. If you retire at 65, you might want a policy that lasts until then to ensure you're covered throughout your earning years. This helps provide a financial safety net, maintaining your standard of living and covering potential health-related expenses as you age.
 

Evaluate your current and expected future debts. Large debts, such as home mortgages or business loans, require that you have sufficient coverage to ensure that these debts can be settled without burdening others. The term of your policy should at least match the duration of your longest financial obligation.
 

Your dependents' needs are crucial in deciding your insurance term. A longer-term is advisable if you have young children or plan to have a family soon, ensuring that financial support is available throughout their growing years until they become financially independent.
 

Personal and family health histories can necessitate a longer policy term. If there are hereditary or chronic health issues, securing a longer-term one ensures that you have coverage when you are older, a time when health issues are more likely to arise, and treatment costs could escalate.
 

Your insurance can also be a financial planning tool. If your goals include funding major future expenses like your children's education or a significant personal project, choosing a policy that matures around these events can ensure you have funds when needed.
 

This reflects how much uncertainty you can handle regarding your financial future. Those with a low-risk tolerance prefer a longer policy term for a prolonged sense of security, ensuring unexpected changes do not jeopardise their economic plans.
 

Over time, inflation can erode the purchasing power of money. Selecting a term and coverage amount that accounts for future costs rather than just today's expenses ensures that your coverage remains adequate over time, maintaining its intended protective value.
 

If you already have a robust emergency fund, you might choose a shorter-term or a less extensive coverage plan. This fund acts as a financial buffer, reducing the need to rely solely on insurance payouts in case of unforeseen events.
 

Assessing what coverage you already have is crucial. You may discover that certain areas of your life are already well-protected, allowing you to focus on covering gaps rather than duplicating existing benefits. This strategic approach ensures comprehensive coverage without unnecessary costs.
 

Policy term means the period till which your insurance plan remains active. If applicable, you can avail of the maturity benefits till the end of the policy term.
 

Maximum policy term denotes the maximum term period up to which an insurer offers a policy. Sometimes, it can go up to 40 years. The policy maximum is the maximum amount that the insurance provider will pay for covered services and expenses.
 

Policy term is the total duration until the policy remains active and the insured can utilise benefits. Maturity is the time when a policyholder survives the policy term and can avail of benefits.