- Date : 28/04/2021
- Read: 7 mins
How old you are is a critical consideration while calculating life insurance premiums, as it increases with age.
When is the right time to buy life insurance? Is it at age 25, when one has probably landed their first job, or is it a few years later, after they have got married and ‘settled down’?
Then again, what about people who have no dependents, or are much older – say someone who is 50. Is it a good idea for this person to buy life insurance at that age? Does the policy serve its purpose?
Before we decide on the right age to buy a life insurance policy, perhaps we should attempt to answer why anyone would want to get one.
This is important because the reasons for getting one’s life insured can vary from person to person, depending on the situation. Also, these reasons could change as one gets older, thereby influencing the choice of plan.
Why get life insurance?
The most basic reason why married people seek life insurance is to ensure financial stability for their kids and their spouse – and maybe their parents, if they are dependent. Nobody wants their loved ones to suffer for want of money if they die unexpectedly and early.
This consideration assumes significance if the policyholder is the primary breadwinner, but it has even more weightage if they are also young; say, in their mid to late 20s.
This is because at that age, the policyholder’s savings and other investments are likely to be modest. This means the financial cushions built by such savings and investments will also be modest. In such a situation, death proceeds will be godsend for a bereaved family.
If financial security is the primary consideration, the earlier a life plan is bought the better it is for the buyer and their family, because of the lower (hence, more affordable) premiums charged for a lower age group.
Why buy term insurance?
Insurance premiums increase with the age of the applicant. This is because, as people age, they tend to develop health problems. This increases the probability of insurance payouts, which insurance companies must consider.
Delaying life cover by just 10 years raises the premium by more than 50% for the same sum assured. That is why it is advisable to buy life cover before turning 30, even if the buyer is unmarried.
This is keeping in mind a future family, as well as the well-being of one’s parents who may need security in their old age. Death benefits can be used to pay off debts, if any. Plus, the premium paid is also eligible for deduction up to Rs 1.5 lakh.
The plan that makes sense for such young people is term insurance, i.e. life insurance for a term or period, mainly because it is cheap.
One can get term insurance with death benefits of Rs 50 lakh at an annual premium as low as Rs 3776, an amount that should be affordable even for those starting out in their career.
Do note that with term insurance, nominees get the benefits only if the insured person dies. This means there is no financial return if the policyholder survives the policy term, unless the term plan comes with riders – or the insured has bought some – related to critical illness or accidental disability.
Plans for people aged 30+
In your 30s, your responsibilities are likely to be different from what they were in your 20s. By now, you are usually settled in a job, probably got married and have children, and are in the process of building for the future.
This includes taking a home loan, car loan, paying off old family debts, or even starting to invest. And as you moves into your 40s and start earning more, your responsibilities and goals also get bigger.
Does term life insurance still make sense in these changed circumstances? Experts are divided on the issue.
One group of financial experts say term life plans continue to be relevant in this evolving scenario and should be continued beyond the age of 50. They refer to customised term plans for various age groups with higher premiums, and point out that these are usually monthly income payment policies that meet the changing needs of an ageing policyholder.
Others, like American financial advisor and author Suze Orman, contest this. Orman says life insurance is for financial protection for a policyholder’s dependents when there are no other assets. But 20 years down the line, things will change; the policyholder’s five-year-old kid would be 25 and earning, and adequate assets would have been built to support the surviving spouse.
So, she says, term plans have a limited, fixed shelf life.
Why go for whole life cover?
Death benefits are not the only returns a life insurance policy buyer can hope for; many life insurance policies also offer what may be called ‘living benefits’ – which accrue while the insured is still alive.
These benefits come with traditional life insurance policies such as endowment policies, money-back plans, whole life plans etc., where there is a guaranteed return. They are ideal for people in their 30s and 40s as they seek to build a future.
Given below are three such benefits:
- Investment benefit: Certain whole life policies act both as insurance cover and an investment option. Here, a portion of the premium is invested in equity or debt funds or a combination of both, depending on the policyholder’s financial goals and risk profile.
- Maturity benefit: There are also life insurance policies that double as saving instruments by offering maturity benefits. Unlike term plans, here the total premiums paid are returned on maturity if the insured survives the policy term without making any claims.
- Loan benefit: A policyholder can also take a loan against their policy, but this is only for traditional life insurance policies and sometimes unit-linked insurance plans; never for a term plan. At 10%-12%, the interest rates are lower than that for personal loans. Loan amounts are 80%-90% of the surrender value of the policy.
Related: Simple ways you can secure your father's post-retirement life
Insurance at age 50+
For people aged 50 and above, health insurance may appeal more than life insurance because: (a) with advancing years come various ailments, and (b) at this age, life insurance is prohibitively expensive.
Take the cheapest life cover option – the term life plan: for a cover of Rs 1 crore for a 20-year term, the premium would be at least Rs 26,500 for a married male of 50, as opposed to Rs 8500 for a 30-year-old male, and Rs 16,000 for a 40-year-old male.
Premiums would cost way more for whole life insurance. But this is just the way it is – a new life insurance policy costs more for older people. So should one go ahead with life insurance at age 50 despite the high premiums, or invest in a health plan, which may not provide the same mental peace?
It is not unusual for people of this age to buy life insurance, for who doesn’t need financial security? But care must be taken to choose a plan that fits the buyer’s needs. As stated earlier, goals and needs evolve with age.
Term life assures support for a limited period – till one’s kids are financially settled, loans paid off, and a retirement corpus built. At 50, much of this is already achieved.
Whole life policy lasts till death, and involves wealth creation; this is welcome at any age.
Remember that age is one of the most important factors when it comes to calculating premiums, which increases with age. So buying life insurance early will help keep the premiums affordable.
Also remember, the earlier you buy insurance, the more tax you save. This is because term insurance premiums are exempt from tax under Section 80C.
At the end of the day, we should keep in mind that a life insurance policy is not a wealth multiplying investment asset; its main purpose is to provide financial security to your dependents in the event of your untimely demise.
So, even if you missed the boat when you were young, you can always make amends later in life. Wealth creation or life insurance cover: what should come first? Read this article to clear your doubts.