The importance of protecting your family against unforeseen events is the most important reason for opting for a life insurance policy for yourself. However, the bigger question is when to buy the same and how much coverage do you need.
Most people know that the earlier you buy a life insurance policy, the better it is. But the reason for the same might not be as clear to most. Thus, we will help you understand the same.
When to Buy a Life Insurance Policy?
- The earlier the better
The earlier you buy a plan, the better it is. But why so? This is because, the younger you are, the lower is going to be the premium.
The life insurance premium is calculated on your current age and does not rise after that. So, if you opt for a Life Insurance Policy at the age of 25 years, your premium for say INR 10 lakhs till age 60 would surely be lesser than the premium for a 35-year-old person of same coverage and tenure.
This is because the older you grow the higher would be the mortality rate. By this, it is meant that the chance of dying increases with age and so does the cost of insurance. So, at 25 years of age, your mortality is much lower than at 35 years which in turn is lower than the mortality at 45 years and so on.
Thus, the premium that you need to pay when you opt for a life insurance policy would be quite low if you opt for it younger in life.
Let us take an example of a Max Life term insurance plan, Max Life Smart Term Plan. The premium for a non-smoking Indian male with no pre-existing conditions is given below:
Sum Assured: INR 1 CR
Tenure: Till 70 years of age
|Total Premium Paid till 70 years of age
|INR 4,48,400 (Premium paid for 40 years)
|INR 5,64,990 (Premium paid for 30 years)
So, if you start your INR 1 CR Term Insurance at the age of 30 years you end up paying a lesser amount of total premium even if you pay for 10 more years than if you start at 40 years of age.
Even if you buy any other traditional life insurance policy, like ULIP or Endowment, you would pay a much lesser mortality rate if you start earlier. So whatever policy you buy the amount that you pay for your life coverage would keep increasing with the increase in your age.
Longer Coverage Duration
If you opt for a life insurance policy early in life, your total payout towards your life insurance plan would be significantly low and affordable along with higher coverage duration as well. The later you opt for your life insurance plan, chances of opting for a high duration life insurance plan lowers as the premiums are significantly high.
- Pre-existing ailment coverage:
With the rise of lifestyle and critical ailments, young people also need life insurance. The rate of illnesses like heart attack has risen significantly in India, in the last decade or some, especially amongst men. 40% of Indians develop heart ailments under the age of 55. Thus, if you opt for a high life insurance plan earlier in life, you would get enhanced coverage without any exclusion for pre-existing conditions.
The Rise in Mortality Rates
It is a universal truth that with age the physical health of a person deteriorates and thus the premium amount needed to get a certain amount of life coverage also increases. Some insurance companies might not just provide coverage in case someone has some chronic ailments. Like some companies do not provide a policy if you have diseases like diabetes and hypertension. Likewise, on the other hand, even if company-provided insurance to people having these ailments they charge a much higher premium or deduct a higher mortality charge in case of ULIP policies.
If the company decided then they might call for a rate upon the premium in order to provide the desired Sum Assured then they can ask you to bear that extra amount to get the coverage you wish to have.
Since insurance is a contract, you need to disclose each and everything before the policy is issued. However, if you opt for the plan and then have any ailment, your mortality rate cannot be increased later once the policy has been issued. Hence, it is advisable to buy insurance at an early age to avoid such concerns.
- Tax Benefits
Right from your first salary, tax benefits come handy. Life insurance is one of the only EEE (Exempt exempt exempt) products in the industry where you get 100% tax benefits, other than PPF (Public Provident Fund). All other products in the industry have some tax component or the other. There are 2-way tax benefits in insurance plans.
- When you pay the premium, you are eligible for a tax deduction under section 80C of the Income Tax Act 1961 upto INR 1.5 Lakhs per policy year
- When you receive the money as maturity benefit, you are again eligible for a tax rebate under section 10(10)D provided the premium paid for the life insurance policy is less than 10% of the sum assured that you had for the entire policy tenure.
- Death Benefit is always tax-free in the hands of the nominee or the beneficiary.
Insurance, Which Can Double up as an Investment
There are some plans like Endowment plans, ULIPs, etc. which can be used as an investment as well since there is a component of savings and investment incorporated along with life insurance coverage. So, it is a dual benefit and can help you build a healthy portfolio right from a younger age.
- Can be used as collateral for loans
Life Insurance Plans can be pledged for loans as well. This can be used as collateral if you wish to opt for a loan for your marriage, education, children, etc.
Life Insurance is a good product and the earlier you take it, the better it is for you. Life Insurance should first be taken for its coverage and then for the additional benefits it provides.