In India, the life insurance industry is rapidly growing, and in 2027, it aims to reach INR 14.5 trillion. This growth is driven by a number of factors, including increasing awareness of the importance of financial planning, rising disposable incomes, and the growing popularity of digital channels.

In the age of digitization, where awareness about financial planning among youngsters is on the rise, one aspect often overlooked is the importance of owning life insurance at an early age. It is interesting to note that India has the highest youth population, at a staggering 66% below the age of 35, is a force to reckon with, with an immense potential for growth in the immediate future.

However, the Indian life insurance industry, although witnessing a surge in awareness, still struggles with low penetration and unawareness regarding the benefits of life insurance when taken at a young age.

Owing to the evolving landscape of the life insurance industry, let’s understand the benefits of buying life insurance early:

Lower premiums:

One of the most compelling reasons to consider life insurance at a young age is the advantage of lower premiums. Insurance premiums are calculated basis factors like age, health, and risk factors. By starting early, individuals can secure policies with lower premiums, which results in significant long-term savings. Locking in a low premium early in life ensures that the cost of coverage remains affordable throughout the policy’s duration.

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Financial security for dependents:

Life insurance provides a safety net for dependents in unfortunate event of the policyholder’s untimely demise. Owning life insurance at a young age lets individuals protect their loved ones from financial uncertainties. Life insurance can support dependents by providing funds to cover outstanding debts, education expenses, or day-to-day living costs. It offers peace of mind knowing the financial future of loved ones is secured.

Accumulation of cash value:

Some life insurance policies offer a cash value component that grows over time. This cash value can be accessed or borrowed against during the policyholder’s lifetime. By starting a life insurance policy early, individuals have a longer time horizon to accumulate a substantial cash value. This amount helps fulfil various financial goals, such as funding higher education, purchasing a home, or supplementing retirement income.

Long-term savings and investment:

Life insurance policies can serve as effective long-term investment instruments. In addition to providing protection, they offer opportunities for wealth creation. By starting a life insurance policy at a young age, individuals can benefit from the power of compounding over a long period of time. These policies often include investment components that allow policyholders to allocate a portion of their premiums towards investments, potentially yielding higher returns over time.

Guaranteed compounding growth:

The power of compounding is a well-known phenomenon, and the younger you start investing, the bigger your corpus can become. What is not known is that higher risk doesn’t always equate to higher rewards. This is backed by the SEBI study which shows that 90% participating in Equity F&O markets, the most sought-after investing option for youth population (75%+ F&O investors are in age group 20-40), out of which, 75% of those making loss are under 40.

While it’s important to take risks and make profits, it’s equally important to have a balance in the portfolio. Invest in a savings/ income insurance plan to get the double benefit of compounding growth of wealth and a guaranteed return at minimal to no risk. A financial plan not accounting for unpredictable events is an incomplete plan.

Tax benefits:

As per old tax regime, under section 80C an individual can avail tax exemption of up to INR 1.5 lakh. While ELSS and PPF are the most popular options of tax saver investments, life insurance can be a lucrative alternative, helping one with the much-needed security and income growth while also allowing them to enjoy the benefit of tax exemption.

Balances investment Portfolio:

Including life insurance in investment portfolio creates a balanced approach that safeguards your loved ones, mitigates risk, and ensures financial stability, thereby enhancing the overall resilience and long-term growth potential of investments.

The various challenges hindering youngsters from investing in life insurance are:

Underestimating the risks:

Young individuals often underestimate the risks associated with unexpected life events. Ignoring the truth that life is uncertain can deter them from considering life insurance as part of their financial planning. Hence, they may fail to recognise the financial implications of not having life insurance to secure loved ones.

Lack of financial planning knowledge:

Many young individuals have limited exposure to financial planning concepts, including life insurance. They may not fully understand the benefits and features of life insurance policies, making it challenging to recognise their importance in their financial journey. A lack of knowledge contributes to the low penetration of life insurance products among the younger population.

Affordability concerns:

Perceived affordability issues also hinder young individuals from considering life insurance. They may view life insurance as an expensive investment when faced with competing financial priorities and limited disposable income. The misconception that life insurance is a luxury rather than a necessity can prevent them from recognising its long-term value.

Treated as an investment option:

Youths wonder if it is essential to buy life insurance policy when other investment options have better returns. Well, the primary objective of investing in a life insurance is protection/life cover in case of uncertainty, as no other financial investment provides life cover. Hence, it is not an option but a must have investment for secured life.

The challenges can be addressed with constant efforts and new initiatives.

Educating the youth:

In order to address the lack of knowledge and awareness, it is crucial to strengthen financial literacy programmes in schools and colleges. Young individuals will have understanding of financial planning if financial education is part of the academic curriculum. This step will help us address the unawareness of the younger population regarding the benefits of life insurance.

Tailored policies for the youth:

Designing life insurance policies that align with the needs and aspirations of young individuals is vital. Youngsters often have different financial goals and priorities compared to older individuals. Life insurance companies can tailor policies to appeal to the tech-savvy generation by offering flexible options such as customizable coverage and investment components. The ability to personalise policies based on individual preferences can make life insurance more appealing and relevant to the younger demographic.

Leveraging digital platforms:

In today’s digital era, insurance companies need to enhance their online presence to reach the tech-savvy youngsters. By leveraging social media, digital platforms and technology, life insurers can simplify the policy purchase process, making it convenient and accessible for young individuals. Online tools and calculators can assist in financial planning and demonstrate the potential benefits of early life insurance adoption.

Conclusion:

Encouraging young individuals to incorporate life insurance into their financial planning will provide essential financial security and protection against uncertainty. This addition to the portfolio will set them on a path of long-term wealth accumulation and financial freedom. By taking the necessary steps today, youngsters can unlock a brighter and more secure financial future for themselves and their loved ones.

(By Nitin Mehta, Chief Customer Officer and Head-Marketing, Digital Business & Online Sales, Bharti AXA Life Insurance. Views are personal)