As one nears retirement age, the safety of their near and dear ones is a constant subject of worry. Retirement destabilizes a stable source of income that one can rely on to support their family as the sole breadwinner.
To avoid a situation where your loved ones are coping to meet the expenses and debts in your absence, term insurance can be a great way to protect your retirement. In this article, we will help you clarify how term insurance can enable the sole earner of a family to take strategic financial investments that their loved ones can benefit from if they pass away.
Let’s first explore what we understand by term insurance.
What is term insurance?
Term Insurance is a life insurance model where the insurer provides coverage for a fixed period. The death benefit is paid to the dependent if the policyholder passes away before the term period.
This policy is more economical than permanent life insurance, where the insured must pay for a more extended period. In term insurance, the insured can choose a period that favors his circumstances and the premium model.
Term insurance is an extremely important investment for anyone with a spouse or children to look after or grandchildren they need to support. It is one of the best strategic financial investments you can make in your early working years to ensure the financial welfare of your dear ones in your absence.
Now that we have understood term life insurance, let’s explore how term insurance works.
How does term insurance work?
Term insurance policies work primarily for a particular period, ranging from 10 to 30 years, depending on the type of policy the insured has signed up for. Most term insurance policies are offered for 10, 20, and 30 years.
The insured has to pay the premium against the benefits he/she is liable to receive if he/she passes away. This premium amount varies depending on the term period of the insurance and from one insurance company to another.
The premium also depends on the policyholder’s age, health, lifestyle, and life expectancy. Considering these factors, the insurer calculates the premium amount that should be paid every month until the chosen period ends.
If the policyholder pays for the whole policy tenure and dies afterward, there is no cash value paid or coverage provided by the insurer. They can renew or convert the insurance into a permanent life insurance policy. Only if the policyholder passes away within the insurance term will the amount be paid to the beneficiary.
Types of Term Insurance Policy
The coverage you will receive or the premium you must pay so that your dependents can enjoy the benefits depends mainly on the type of term insurance you have applied for. Let’s look at the various term insurance policies and how they differ.
1. Term life insurance
One of the best term life insurance plans, the insurance company offers temporary financial coverage for a fixed period in this policy. The dependent pays the cash benefit if the insured passes away within this period. This type of term insurance helps individuals ensure that even with an untimely death or a fatal injury, their loved ones can meet the debts and expenses and sustain the coverage amount.
2. Decreasing term life insurance
In this type of term insurance, the coverage amount decreases over the years. This policy is designed with the idea that the beneficiary can use the coverage amount to clear off mortgages, which decreases over time.
However, it is essential to know that in this type of term insurance policy, although the coverage amount reduces over time, the premium payments are consistent even while the benefit declines.
Now that we have understood the two main types of term insurance let’s look at a few factors you should consider while applying for term insurance.
Factors to consider while buying term insurance for retirement
- Deciding the term period carefully
You must choose the term period carefully to ensure the claim benefit is sufficient for your dependents once the coverage period is over. For example, if you have kids in their early years of school, choosing a term period that helps them with education loans in case you pass away is suggested. Once they have finished their studies and started their career, they can provide for and sustain the family.
- Determine the coverage amount wisely
The nature of term insurance is contingent, and while it might feel like an amount you may never see if you were to survive through the policy's tenure, certain factors must be thought through carefully.
To decide the coverage amount, consider the years your family will require financial support and the expenses they will incur. You must take into consideration whether there are any mortgages or debts that need to be cleared off. Combining these factors into the equation allows you to decide on the coverage amount that suits your case.
- Have a backup plan
While most corporate employees are liable to a certain amount of term insurance coverage as an employee benefit, it is not always sufficient for a family to sustain itself without the sole breadwinner. Therefore, it is imperative to assess whether this amount would be enough and apply for an individual term insurance policy if required. This way, you can stay assured that you have done the needful instead of relying on your employee benefits to ascertain that your family gets the necessary financial assistance.
Now that we have learned on a broader spectrum about term life insurance, let's understand why we need this type of insurance coverage in detail.
Why do you need term insurance after retirement?
- Supporting your spouse
One of the reasons you should apply for the best term insurance is because the death benefit could be a financial cushion for them instead of leaving them high and dry if you are no longer alive. We all have some financial commitments or debts that we must pay off monthly to avoid fines or penalties.
With a term insurance plan, your spouse can clear off these debts from the coverage amount and look after herself self-sufficiently.
- Children who are dependent
We always wish the best for our children and pray that their future is bright and rewarding. If you have had late children who require financial assistance to complete their education and move to the next stage of their lives, then you must ensure that they are secured financially.
There shouldn’t be any obligation in their career path, and hence, if you have children who still need a few years to get back on their feet and earn a living, it is always a great idea to choose a term life insurance accordingly.
- Leaving a legacy behind
We care for our family and try to provide everything within our means. By applying for term life insurance, you can leave them a legacy they can use for their welfare and secure them financially. Nobody knows when their time will come; hence, knowing that a coverage amount will sustain your family can be a great source of stress relief.
- Funeral arrangements and costing
While this wouldn’t cross our minds, funeral costs can be high in some cultures. As an unavoidable expense, it can also be difficult for your family to cover the expenses. With a life-term insurance plan in place, you need not worry about the funeral costs, as the coverage amount can cover it.
Protect your retirement and family with term life insurance!
As one of the most straightforward insurance policies with flexible coverage options that the policyholder can choose, term life insurance is something, everyone nearing their retirement age must consider if they haven’t at an earlier stage.
Applying for term life insurance earlier in life will reduce the premium amount, but you can also expect a higher coverage amount as you are less of a risk to the insurers. We hope this article helps you understand the significance of term life insurance and how it can enable you to create a financial safeguard for your loved ones.
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