India is a young country with its population in the 15-34 age group steadily rising from 353 million back in 2001 to 430 million in 2011 and expected to be 464 million by the end of this year. With these statistics, India is set to become the youngest country in the world, with nearly 64% of its population being part of the working-age group.
Often, the younger working group tends to live from paycheck to paycheck. Very few tend to explore the possibilities with available finances in their 20s. Among many things that are least considered during this age, life insurance is often perceived as something that may be required much later in life. Rarely are parallels drawn between equity or debt investments and insurance investments. As the young lot continue to invest in high income-generating opportunities, insurance is often left behind for later.
However, the fact is that investing in term insurance early in life comes with many benefits. Life insurance investments made early in one’s life can reap many benefits later on in life. Here’s a look at some of the main reasons why buying a life insurance plan at an early age is important.
Main reasons to buy life insurance early
Wider cover at lower premium
A term insurance investment made early can secure the investor and his/her family’s financial future at reasonable cost. As the age increases, the premium amount also rises. Therefore, the earning members of the family must invest in term insurance at an early stage in life. It can act as the family’s financial protection in case of any unfortunate event.
Experts suggest that an earning individual within 40 years of age should go for a term plan with a life cover of about 20 times their annual income. An individual in his/her 40s must buy a life cover of 10-20 times their earnings, and an individual in his/her 50s can choose a life cover that is 5-10 times their annual income.
For young individuals who are the sole breadwinners in their family and have taken a housing loan, car or personal loan, a term insurance can act as the family’s financial security. In case of an unfortunate event, term insurance can help in covering for financial obligations like loan repayment.
Early start means lower premiums
The chances of being healthy are higher before one reaches the 40 years mark. Diseases like diabetes, thyroid, hypertension, blood pressure, etc. are common once an individual attains this age. Hence, if opting for a term insurance at a younger age, one can benefit from lower premiums as compared to the applicable charges post 40 years. As one ages, the premium amount also increases. Hence, it makes sense to buy a term plan as early on in life as possible.
While the tax component could change as per latest tax laws and regulations announced by the Government of India, the premium amount mostly does not change during the policy tenure.
Term insurance plans offer tax benefits to the investor. As per Section 80C of the Income Tax Act, the premium paid towards life insurance during a financial year is tax-deductible from the investor’s net income. One can claim this benefit for premium payments made up to Rs. 1.5 lakhs per financial year. For example, if your annual premium comes up to Rs. 1 lakh, you can claim the entire amount as a tax deduction from your total income. This way, you can lower your tax liability. If you purchase term insurance at a young age, you can benefit from a reduced tax burden when you may need it most due to other liabilities such as home loans, car loans, etc.
Lower dependency on term plan by employer
For young individuals who want to switch jobs to explore better opportunities, term plans from their employer may not be dependable and usually end when one leaves the organization. If one invests in a good term plan, it is easier to reduce dependency on insurance provided by the employer while growing up the ladder in one’s career.
Term insurance is an important investment that one must consider at an early stage in life. Buying term life insurance early can result in benefits like paying lower premiums, enjoying tax benefits, protecting the family financially against any unforeseen event, etc. Since there is a multitude of options available, individual investors must carefully consider them before making a choice.
- What is the best age to take term insurance?
It is ideal to opt for a term insurance of 40 years or till 99 years of age. The benefit of starting it early in life is that one can get much lower premium rates which can remain fixed for 40 years. It is beneficial if one opts for a long policy period while young since the responsibilities always increase as one ages and also the number of dependents in some cases.
- Do you need life insurance after 65?
If you retire and have open debt or have dependents, it makes sense to have life insurance at the age of 65.
- How much life insurance do I really need?
Depending on your age, you must decide your life insurance cover. If you are below 40 years of age, opt for a life insurance cover of up to 20 times your annual income. For above 40 years, you may consider taking a cover of 10-20 times your annual income.
- Does the premium of term insurance increase with age?
Term insurance premiums are far lower for those who are young. The premium may increase either with an increase in age or an increase in premium rates.
- What happens to term life insurance if you live through the term of the insurance?
In case you outlive your term insurance policy, your investment through premiums stays with the insurance company and your insurance cover lapses. The premiums are used by the insurer to payout to the families of those who could not outlive their policy.