Buying a term life plan at a young age lays a strong financial foundation that not just helps you in achieving your life goals in time but also protects against uncertainties in life
Is there a right time to secure the financial interests of your dependents? ‘As early as possible’ is likely to be the correct answer to this question. Life has never seemed more unpredictable in these pandemic times when getting an adequate life insurance cover has become an irrefutable necessity.
Now, many purchase traditional life insurance products such as an endowment plan to not just secure the financial future of their dependents but also to take advantage of the policy’s survival benefits. However, despite the advantages, these plans can also provide insufficient life coverage while offering lower returns than other investment instruments.
As such, it might be a better idea to separate investments and insurance, and instead purchase a plain vanilla insurance product like a term plan. Doing so could ensure you are able to get the desired life cover (that should ideally be at least 10 times your current annual income) at an affordable cost. Here are a few reasons why you should consider purchasing a term plan at an early age.
To save in premium obligation
The premiums of a term insurance plan typically remain the same throughout the policy tenure. However, the premium amount is determined based on multiple factors including the age at which the policy is purchased. The premium amount for the same sum assured will be much more if you purchase it at a later stage in life.
While a 25-year-old individual would need to pay just `8,855 per year for a Rs 1 crore term plan with a policy tenure of 35 years, the same policy would cost Rs 16,423 annually for a 35-year-old individual and Rs 35,925 for a 45-year-old person. The premium cost would double if policy purchase is delayed by 10 years and quadruple if purchased after 20 years.
The difference in premiums to increase the policy tenure by 10 years (i.e. from 25 years to 35 years) would be just Rs 1,573 for a 25-year-old insured. But this same difference would increase to Rs 3,768 for a 35-year-old individual and Rs 8,792 for a 45-year-old individual. As such, purchasing a term plan at a young age allows you to get the desired cover at an affordable cost, especially if you want to continue the policy for a long tenure —something that you ideally should.
To secure financial future dependents
A delay in purchasing a life insurance policy could expose your family members to tremendous financial risks, especially if you are the sole breadwinner. Also, as pointed out above, it will cost you much more if you purchase a life plan at a later stage. As such, you can have peace of mind by purchasing the relatively cheaper term plans at a young age.
To minimise chances of policy rejection
We become susceptible to new medical conditions or diseases as we grow old. The insurance risk could increase if you delay the purchase of life insurance and develop medical conditions in the meantime—things that could increase the premium cost further or lead to a rejection of policy (based on your condition). To avoid all this, it’s better to start your insurance journey at a young age when chances of developing medical conditions are usually less and the premium cost is also very low.
To save tax
Premiums paid towards life insurance policies qualify for tax deduction benefit of up to `1.5 lakh under Section 80C of the I-T Act. As such, term plans offer an excellent tax-saving opportunity for young individuals who often find it difficult to maximise the tax benefits at their disposal.
To lay a strong financial foundation
It’s always wiser to have adequate insurance protection before starting a big-ticket long-term loan like a home loan so that the dependents are not left in the lurch in case the borrower dies during the loan tenure.
On many occasions, term life cover could also work as collateral for big-ticket loans. Also, if you are able to get a term life plan for a high sum assured at affordable premiums, you will be left with more money to meet other critical financial goals like building an adequate emergency fund through regular savings allocation or raising the down
payment fund for a home or car purchase through smart and consistent investments. Buying a term life plan at a young age lays a strong financial foundation that not just helps you in achieving your life goals in
time but also in effectively protecting against uncertainties.
The writer is CEO, BankBazaar.com