Should You Buy Term Insurance Till 99 Years Of Coverage?

Should I buy term insurance with a shorter duration or go for the maximum tenure available? This question will surely cross your mind at least once while you're designing a term insurance policy according to your and your family’s preferences. 

A lot of insurance companies have started selling term insurance policies with a 99-year tenure. They sell these plans as a cost-efficient way to leave a 'guaranteed return' for your family. Since the chances of you surviving for such a long period is very low, the chances that your family receives the death benefit automatically rise. 

These 99-year term insurance covers, sometimes packaged as ‘whole life plans’, might seem attractive but do they really benefit you? Let’s find out.

How do term plans with a duration of up to 99 years work?

Ultra-long term policies work very much like a pure term insurance plan. They provide a death benefit to your family in case you pass away during the policy term, and if you survive there’s no payback. The only difference is that ultra-long term policies come with a very long premium paying duration that could go even beyond your retirement (unless you’ve opted for a Limited Pay option).

Let’s understand how these plans will pay - with the help of an example.

Say you buy a term insurance policy of INR 1 Crore for a duration of 99 years at age 30. If you survive the entire policy duration, there won’t be any payback. 

However, if you don’t, let's see how the returns will vary depending on when you pass away. Here’s a sample table. 

If you pass away at age 65, the investment could bear an interest of 10.3%. And, even if you pass away just before the end of the policy duration, at 99, the total return generated is 3.9%. 

At face value, there are two benefits of term insurance plans with a cover of up to 99 years - 

1 - Tax-free interest 

They are an assured way of leaving a financial legacy for your loved ones. Your family could get ~ 4% annual tax-free interest for a term as long as 50 years. (This can vary based on the plan and duration you choose)

2 - Assured payback 

As it is less likely one would live as long as 99 years, an ultra-long term policy can be a way to get a guaranteed payback for your family when you pass away. You can look at this option, as a way to leave a financial legacy or a parting gift for your family on your death. 

But do these plans really make sense?

While ultra-long term policies with a duration of up to 99 years might work exactly like a pure term insurance policy, there are some things you should be mindful about. 

1. The premiums of these plans can be very expensive compared to pure term plans for shorter terms. 
2. You’ll have to continue paying premiums even beyond retirement. If you don’t have any source of income post-retirement, this might become difficult. 
3. Just like regular term plans, if you survive the policy term, these plans won’t pay you anything back. Meaning, you'll have paid more premiums for more years - for no return. But hey, congrats on living such a long life! :)
4. You should do the NPV calculation of the amounts you pay and the returns you get - and only if the interest rate makes sense to you (as low as 4% in the above example) - should you go ahead and buy such a plan. 

The purpose of insurance is protection and risk management. Ideally - you should not look at it as an investment option that bears a ‘return’. Having said that - even for those who intend to get a guaranteed return from the money they put into insurance - through such ultra long-term policies - they might not be the best options. 

While the up to 99-year term plans are sold as ‘guaranteed payback products’, they technically cost you more and might not always give you a decent return for your investment. 

So, what’s the Beshak Recommendation?

Firstly, you should invest in pure term insurance policies with the sole purpose of getting protection for your family’s finances. In exchange for the premiums you pay, they will provide financial security to your family in your absence.  

Secondly, instead of paying a higher premium for an ultra-long term policy, you can invest the additional amount in other investment avenues, and earn much better returns.

If you have any queries related to term insurance, you can post them on the Beshak Insurance Forum and get answers from experts within 6-8 hours!