ResourcesExplore the full ACKO experience and make the most of your plan
1800 266 2256

Understanding Policy Term in Life Insurance

What policy term is and how it affects your life insurance coverage and premiums.

Policy term in insurance

Home / Life Insurance / Term Insurance / policy term in life insurance

A life insurance policy can help the family members deal with financial consequences if the policyholder dies unexpectedly. Acknowledging the importance of the right insurance policy, policyholders should be careful while selecting their plan. In most cases, the evaluation process requires a close look at three things: premium payment, duration of the policy (also called policy term) and the benefits. Usually, the focus is on the premium and the benefits, but the policyholder also needs to ensure that choosing the right policy term aligns with their financial goals and needs. Read ahead to know more about the policy term in life insurance.

What is a policy term?
Jump Tag Icon

The policy term is the maximum period for which the life cover in the insurance policy will remain active. It is usually determined at the time of choosing the policy and purchasing the insurance plan. Normally, companies offer a policy term ranging from five to 40 years. However, once the policy term period is set, it cannot be changed. Thus, you need to be careful in deciding the policy term for your life insurance plan.

Factors to consider while choosing a policy term
Jump Tag Icon

Here are some pointers to keep in mind before closing on the right policy term. 

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.

Some other insurance plans provide financial protection only upon the end of the policy term. Take the example of Preetha who had taken an Endowment Plan with a policy term of 20 years and with 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.

Policyholders need to assess what aspects they require financial support for, while choosing insurance plans and policy terms. It could be for everyday requirements like living expenses, as well as long-term goals like children's marriage or education.

Recommendations for choosing the right policy term
Jump Tag Icon

Depending on the type of policy, here are the recommendations for the policy term. 

So, investors who stick with the policy for a long time can see their money grow faster. Since the policy term can't be changed once the insurance plan is bought, it must be a carefully considered decision to choose the right policy plan.

Difference between policy term and premium paying term
Jump Tag Icon

Now that you are aware of the need to choose the right insurance plan with the optimal policy term, it is important to understand the difference between the Policy term and the Premium Paying term. 

Sometimes, the policyholder would pay premiums until the end of the policy term and sometimes it could be for a shorter duration. For instance, if Shalini, who is 25 years old, takes a Term Insurance plan with a policy term of 40 years, her policy would mature when she turns 65. However, she also availed a premium paying time of 25 years. This means that she would need to pay premiums until she turns 50 and not after that. But, the policy would continue to be active until she turns 65. This is an example of when the premium paying time is less than the policy term.

Frequently Asked Questions
Jump Tag Icon

Here are some common questions and answers related to the policy term in life insurance.


What does policy term mean in insurance?

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.

What is the difference between maximum policy term and policy maximum?

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

What is policy term vs maturity?

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

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.