What is Policy Term in Term Insurance?

Policy Term in Term Insurance: Overview

A policy term in term insurance refers to the period for which the policy remains active. The period is usually determined at the time of purchase and policyholders have the flexibility to choose the policy term based on the number of years they want to be covered.

Introduction

Most Indians either pick a random policy term, like “20 years” or “till age 80”, without realizing how sharply it affects their premiums. And with premiums increasing by 30–40% when coverage extends beyond age 65, choosing the wrong tenure can make your policy unnecessarily expensive or completely useless when your family needs it most.

At Ditto, our advisors speak to thousands of young earners, parents, and homeowners every month, and the biggest confusion we see is around deciding how long the term plan should actually last.

In this guide, we will discuss what is policy term in term insurance, its types, and the ideal tenure to help cover your needs. 

Confused about which term insurance policy best suits your needs? Book a free call or WhatsApp us for further assistance.

Types of Policy Term

• Short-Term Policy

Short-term policies are plans with relatively shorter tenures of 5 to 10 years. They are suitable for individuals who do not have long-term financial obligations, such as expenses associated with children's higher education, marriage, loans, or limited liabilities. 

• Long-Term Policy

Long-term policies offer long policy terms up to 30 years or the entire life of the insured. These plans are designed to ensure the long-term or  lifetime financial security of your loved ones, such as your spouse, children, and even grandchildren. 

• Flexible Policy Term

Flexible policy terms do not have a fixed term and can be altered to suit the policyholder’s needs. These plans can be ideal if you are unsure of your future responsibilities and liabilities. You can also change the term to suit your requirements before purchase. 

For example, the Acko Life Flexi Term Plan offers a flexible policy tenure. As part of this, you can increase or decrease your term based on changes in your financial dependents, loans (home, car, education), lifestyle, or income. 

Factors Influencing Policy Term

01

Age of the Policyholder

If you are purchasing a term insurance plan when you are 25 years old, your policy tenure can be anywhere from 35 to 40 years. But, if you are purchasing a term insurance policy when you are 35 years old, the ideal tenure can be between 25 and 30 years.

02

Age and Number of Dependents

Younger buyers have more working years ahead and more future responsibilities, so they benefit from choosing a longer tenure that protects their family. If you have dependents, your policy term should extend until they become financially independent.

03

Existing Financial Obligations

Your policy term should ideally extend until all major financial commitments, such as home loans, education loans, or long-term EMIs, are fully paid off. This ensures your family isn’t burdened with unfinished liabilities in the future in your absence.

04

Current Financial Bandwidth

Your current income and expenses determine how much premium you can comfortably afford each year. In other words, choosing a policy term that fits your budget helps you maintain the term insurance plan without any major interruptions.

05

Policy Purpose

The reason for purchasing a term plan often has a substantial influence on the decision of the ideal term insurance policy tenure. For instance, you can buy a policy to replace income, protect dependents, cover loans, or secure your spouse's retirement.

If you’re struggling to decide the right policy term or a premium payment term, read this article. 

How to Decide the Ideal Policy Term?

• Subtract your current age from your retirement age to decide your ideal policy term when buying a term plan. 
• When you buy a term plan to secure a loan and ensure the debt repayment doesn’t shift to your family, match the policy tenure to the loan tenure.
• Check the premiums while choosing your tenure and sum assured, because both a very high cover and an unnecessarily long term can make your policy unnecessarily expensive.
• If your financial responsibilities continue after retirement, you can choose a whole life insurance plan that covers you until age 99–100 and guarantees a payout upon your death.

Why Choose Ditto for Your Term Insurance?

At Ditto, we’ve assisted over 8,00,000 customers with choosing the right insurance policy. Why customers like Aaron love us:

• No-Spam & No Salesmen
• Rated 4.9/5 on Google Reviews by 15,000+ happy customers
• Backed by Zerodha
• 100% Free Consultation

You can book a FREE consultation. Slots are running out, so make sure you book a call now!

What is Policy Term in Term Insurance? (Ditto’s Take) 

An ideal policy term should cover you until your family is no longer financially dependent on your income, usually up to 60 to 65 years. For example, if you're 30 with a five-year-old child, covering yourself until the child turns 25 to 30 years old, or until your major loans end, provides meaningful protection. 

While insurers allow terms up to 85 years, premiums rise sharply. The higher the age until which you are covered, the higher the payout risk posed to the insurer. So, it’s smarter to choose a balanced tenure and focus on higher coverage during the years when your dependents and liabilities are highest. However, adding a small buffer of 5 years is fine if it boosts long-term peace of mind.

Just make sure that you don’t end up guesstimating the ideal policy tenure to avoid paying more than necessary or choosing a plan that doesn’t fully protect your family.