Could Term Insurance Be Wrong For You?
There are many benefits of term insurance. For starters, it is the world’s most efficient and cheapest way to protect your family’s financial independence should they lose you early. The cover pays a fixed sum of money that will fulfil their everyday monetary needs as well as cover any big plans and events such as higher education, marriage that they will need to pay for, at a later stage in life.
A term insurance policy is important for anyone who has financial dependents, individuals whose lifestyle depends on your earnings - such as a spouse, children, retired parents etc. Financial dependents might also include any other individuals with whom you might have taken a joint loan. In case you pass away early, this amount will go towards fulfilling all your pending financial responsibilities.
Do I need a term insurance policy, right now?
- If you have financial dependents, yes, you do.
- If you don’t have financial dependents, or do not plan to have in the near future - feel no urgency to invest in a term insurance policy today.
The best time to buy a policy is as soon as you have dependents (or make definite plans for the future - such as planning to get married, or having a child).
Do you really save money by buying Term Life Insurance early in life? Your insurance premium amount is fixed based on the age at which you enter the policy. It is lower when you’re younger and increases as you get older - for any given cover amount.
Hence, the traditional recommendation is that you should buy the policy as soon as possible, to freeze that lower premium rate and enjoy savings all through your life.
But, how does it work? Let’s look at some actual numbers. Say, you take a policy for a 1 crore cover, until the age of 65.
So, when you look at the aggregate premiums paid during the term, you will notice that the difference is not really considerable. However, when you factor in a 6% inflation, you will see that this difference becomes wide and clear.
Having said that, it is not wise to just buy a policy early in life in anticipation of dependents or financial responsibilities in the future - just because it is cheaper.
You will have to factor every monetary need your family would have to understand how much cover amount you will need, or the customizations (like adding the Married Women’s Property addendum) you will have to make. So, by buying a policy too early (when you don’t yet need it), you’ll end up making inappropriate decisions that could cost you in other ways.
So, what do we say? We say that you should buy a policy as soon as you have dependents, or right after you make a definite future plan.
But if you already have dependents, there is no point delaying the purchase.
As you grow older, you might get diagnosed with lifestyle diseases or other serious conditions that might make it difficult or even impossible to get a good term insurance policy.
With every year you age, the policy premium goes up, too - by as much as 4-8%.
Here’s a tip! If you have your birthday coming up in the next few months, take this time to research and find the right policy for you, and make the purchase before the birthday. That way, you will get a decent cost discount on your lifelong premiums and you’ll also never ever forget the premium due-date!
You will need to make many small, but important decisions throughout your term insurance purchase journey. And, it is critical for your family, that you make them right. Here’s a detailed resource that will ensure that you get every step right.
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