Life insurance: Why we need life stage specific insurance cover

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Published: December 17, 2019 1:21:16 AM

From an insurance perspective, life stages can be classified into the following groups. Starting your first job, buying your first car or home, getting married, having children, getting promoted, providing good education for children, and saving more money and retirement.

Review your insurance policies every time you enter into a new life stage so that you always have optimal cover.

The lifecycle of people are divided differently by philosophers and psychologists. They identified three life stages for an individual but according to ancient Chinese wisdom, there are seven stages of life. In contrast, an actuary, a person who use statistics and assess insurance risks, has a different approach to life stages.

Understanding which life stage you are in now, helps to compute the optimal cover at any given point of time. Let us discuss the same in detail.

Life stages

From an insurance perspective, life stages can be classified into the following groups. Starting your first job, buying your first car or home, getting married, having children, getting promoted, providing good education for children, saving more money and retirement. In the above life stages classification, having children is one of the few events which change your attitude of responsibility. It makes you think through what needs to be done to secure your own and your loved ones’ future.

As young professional

Though everyone’s circumstances may be different, as a young professional you need to consider what types of insurance will ensure that you financial future is secured. Consider income protection policy to ensure that you continue to receive an income if you become disabled; a life and disability policy to cover any debts such as your study loan, vehicle loan or other commitments towards your spouse, parent or relative.

After marriage

When you are married, you should ensure that your spouse will be comfortably taken care of and not be burdened with debt in the event of your death. This means that you should commit an additional policy to cover extra commitments or add your spouse to your existing policy or take out a separate policy for your spouse. Generally, buying a separate policy may be more cost effective than getting a combined policy. However, premium is based on the age, occupation, and health history.

When family expands

Along with a spouse, when children arrive you need to adapt your insurance policies to ensure that your dependents are not left to deal with debt or unpaid medical bills. It is equally important to ensure that expenses for your children’s education, clothing, etc., are covered until they are able to provide for themselves.

When you buy a house

If the amount of cover that you have in place is enough to pay off your outstanding home loan and leave some additional money for unexpected events, it may not be necessary to change your life insurance. Often home loan providers will offer life cover, and some may even require this cover in order to sanction the loan. If you already have life policies in place that are sufficient to meet the debt and or any additional needs, you can offer the same to the home loan provider as security.

When you retire

When planning for retirement, you need to review your insurance portfolios to see if you are adequately covered to meet your commitments post retirement. It is advisable not to surrender or cancel your policies as you may not get the full benefit if surrendered. Life cover premiums vary significantly with your age, health and can be even declined owing to health fears.

To conclude, it always advisable to review your policies annually to ensure that they still meet your needs. If not annually, you should review at least every time you enter into a new life stage.

(The writer is a professor of finance & accounting, IIM Tiruchirappalli)

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