Term insurance covers the life of the insured for the term period that has been insured. When taken with riders such as critical illness, personal accident, and disability, it ensures that the family of the insured does not suffer from financial burden in case of any unforeseen events in the life of the insured.
The money earned by an earning member of the family is used in many ways:
- Day to day expenses: a household has regular expenses such as rent, groceries, lifestyle expenses, children's fees, transportation, vacations, etc.
- Investments: gold, properties, fixed deposits, stocks, etc.
- One-time capital commitments: marriage, death ceremonies, college fees for children, etc.
- Business: additional money deployed back into the business
- Emergencies: hospitalization, medical emergencies, unplanned travel, and supporting an extended family's financial needs
- Debts: paying off home loans, education loans, vehicle loans, personal loans or business loans
The loss of the earning member(s) of the family thereby puts immense financial stress on the remaining family members. All of the above need to be considered when deciding the sum assured, the mode of receiving sum assured, and the period for which term insurance should be taken to ensure minimal inconvenience to the family.
The official age bracket for buying a term plan is between 18 and 65 years of age. A look at the life cycle of a key earning member shows that term insurance is relevant at all ages:
20s: Most youths start earning during their twenties. Some of them have to pay off their education loans. For several others, it is a thrill of first starting to earn, and they spend their money on buying goods and services they fancy – like clothes, cars, bikes, or traveling with friends.
These types of plans would be ideal to purchase in the 20s, as the health risks are considered lower when one is young. It is a great time to take term insurance, but one should ensure it is taken for a very long duration to cover life risk for as long as possible. There are plans now which cover you up to 99 years, or where you have to pay a premium up to 75 years and then get free coverage for the rest of your life.
An increasing term plan might also make sense, as the income tends to be low in the 20s, and one may not be able to properly anticipate what their expenses will be once they establish their family. Additionally, 15-20 times of annual expenses in your 20s can significantly differ from that in your 40s. Also, riders such as personal accidents make for good options in the 20s.
30s: During their thirties, most people are already married or about to get married and start a family. It is also a time where, for some, their parents are close to retirement age and may depend on them for certain expenses. Expenses include wedding expenses, household expenses, rent or house loan EMIs, purchase of a car, childbirth expenses, household help, children's toys, clothes and education, hospital bills, and travel expenses.
Easily the nature and extent of responsibilities as well as the financial outflows are significantly higher in the 30s than in 20s. The premiums are higher than if the policy is taken in the 20s, but still highly affordable. It is vital to estimate the likely financial needs up to the 70s and 80s when taking the term plan. Riders such as critical illness, personal accident, and disability can really help in unforeseen circumstances and situations.
40s: By their forties, a majority of people should already be insured. Typically if salaried, people reach mid to high-level positions in the organization, or if running successful businesses, tend to achieve reasonable financial freedom. However, in today's times if they have started up new businesses, tried and failed, they could be starting over. Financial responsibilities could continue to be high with lifestyle expenses, children's higher education, aged parents' health, and maintenance expenses and medical expenses of the family as such.
If one missed taking insurance during their 30s, it is definitely important to take one now, keeping in mind the debts and one-time expenses coming up, as well as intended retirement plans. Premiums are definitely higher the later one starts, but it is imperative and beyond doubt that one must have basic insurance such as term insurance.
50s: Several people fulfill peak financial obligations during their 50s, such as children’s' higher education and marriage, parents’ hospitalization and other maintenance expenses, caregiving in case of old age or disability of parents, etc. During such times, critical illness in the family, or disability, and death can once again wreak havoc on the remaining members and waylay the very best laid plans.
So for any reason that someone did not manage to take insurance until their 50s, they should certainly do so. Premiums can tend to be very high, as health risks are considered significantly higher in the 50s. However, it is never too late to secure the financial future of loved ones.
Remember, age, smoking/non-smoking, gender, occupation all play a significant role in the amount of premium to be paid. For details on factors affecting insurance premiums, check out our article <insert link> where we have detailed the same.
There are several online insurance calculators available, not to mention a host of term plan types, add-on riders, payout options, and other customizations that can be done when buying insurance.
Conclusion
- A basic term plan covering the life of an earning member is not an option but an absolute necessity, to secure the financial future of loved ones.
- Starting young keeps the premium amount low. However, one may not be able to estimate or anticipate future expenses properly, and if starting young, it may make sense to take an incremental plan, i.e. increasing term insurance plan.
- Starting in mid-age or later will increase the premium amount. However, it is highly likely that the earning individual can better anticipate expenses and circumstances that need financial insurance.
Lastly, it is safe to say that earlier is better, but also that it is never too late to take a term plan. It is the most affordable type of insurance, comes with a host of riders and add-ons, and can be a lifesaver to the financial situation of the family of the insured.
