Term Insurance

What Millennials Should Know When Buying Term Plans?

Nov 16, 2021

The Millennial generation also called Generation Y is defined as the generation born between 1981 and 1996. Older Millennials would now be settled in their careers and family lives. And younger Millennials are usually navigating their first job at this time. Thus, the Millennial generation makes up the bulk of the workforce both in India and worldwide.

Poised on the praecipe of middle age or the start of their careers, Millennials are aware of the importance of finances and financial coverage, including term insurance coverage.

Unique characteristics of the Millennial generation

The Millennial generation is unique in certain aspects that set them apart from other generations 

  1. The explosion of the internet and social media platforms: 
    Gen Y saw the internet take the world by storm.  Yahoo was launched in 1995, Hotmail in 1996, and of course Google in 1998. Yahoo chat forums connected people like never before. Google, in the meanwhile, revolutionised the internet becoming the most popular web-based search engine ever. MySpace was the first major social media platform and was launched in 2003. Orkut took off in India in 2004. Facebook was launched in 2004 though it got popular from 2007 onwards.  Thus, unlike the generations before or after it, Millennials witnessed the launch and growth of the internet as we know it. The internet and social media have largely been shaped by this generation. 

     
  2. Smartphone technology: 
    Smartphones gained popularity with the launch of the first Apple iPhone in 2007. The first android phone was introduced in 2008. Since then, smartphones and social media have only increased in popularity and changed almost every aspect of our lives. Millennials continue to be the biggest consumers of smartphones to date.

     
  3. Economic recessions: 
    Millennials have been rather unlucky in this aspect. Older Millennials who entered the workforce in 2008–2010 faced the Great Recession occurring at the same time. One decade later, with the coronavirus pandemic, once again the Millennial generation is facing an almost unprecedented economic recession. 

The impact of Covid-19 on Millennials

The pandemic has affected everyone, businesses have closed or laid off people and an already highly competitive job market has gotten worse. Wages all over the world have not kept pace with the housing market.

In India, a study by the Standard Chartered bank showed that many Millennials were unable to manage their daily expenses during the pandemic. As a group, Millennials have been the most economically affected segment by the pandemic, either through job losses, businesses closing, reduction of wages, and so on. They have also been witness to how the pandemic ravaged the health and wealth of loved ones or even their own. 

The covid-19 pandemic has driven home the importance of long-term savings and investments for their future and the future of their loved ones. Money-management and future security is a key focus area for this generation. And this is why more and more Millennials today are turning to term insurance.

What to know about term insurance

  1. Get in early: 
    With term insurance, the earlier you take a policy, the better the younger you are, the lower your premium. The reason is that younger people usually have no or fewer medical conditions. So for all the Millennials in the younger half of the demographic, now is the best time to invest in a term insurance policy. Younger Millennials could also be the ones facing the most economic uncertainties. So it makes sense to take a policy wherein your premium is low, while coverage remains high. 

Here is an example of how buying term insurance early is beneficial:

Arvind is 25 years old and wants to purchase life insurance. He works in Bangalore where the cost of living has increased and has faced a pay-cut due to the pandemic. Unfortunately, his father contracted Covid-19 and the medical costs have wiped out his savings. Arvind was now aware of the importance of life insurance but was unsure how he could afford it.

He contacted a financial advisor who convinced him to purchase a term insurance plan of Rs one crore that would give him coverage until the age of 75 years.  At Arvind’s age, his premium is just a little over Rs 6000 per year, which he can easily afford. 

  1. It is affordable: 
    Unlike other insurance types, term insurance is bare-bones and is highly affordable. Say you missed the bus and you fall in the latter half of the Millennial demographic. You need not fear that your annual premium would be very expensive. A very popular Chinese proverb goes: “The best time to plant a tree was 20 years ago. The second best time is now.” So although ideally, you should have bought a plan years earlier, it is not too late to do so now. 

Let us take the example of Arvind’s senior colleague, Ankur, who is 32 years old. Ankur is settled in his career but has also faced a financial shortfall due to the pandemic. Moreover, he has to fund the school fees for his two children. At this time, he cannot afford to pay very high premiums. To his pleasant surprise, Ankur finds out that term insurance coverage is still affordable. For coverage of Rs one crore, until he turns 75 years, his annual premium is just over Rs 11000. 

  1. Look for discounts: 
    Before buying term insurance, you should look for discounts. For example, insurance providers sometimes provide discounts on premiums if you avail of the highest coverage under a single plan. Moreover, you can utilise the power of the internet to scour for discounts on term insurance online.
  2. Buy it online: 
    The internet has made it possible to purchase everything from clothes to electronics, to vegetables online. Why should insurance be left behind? When purchasing term insurance online, the middle man gets cut out. Thus, you get plans much cheaper than if you buy through brokers and agents.

     
  3. Cover gaps with insurance riders: 
    Absolute basic term insurance plans are available wherein only death cover is provided. However, you may wish to pay a little bit more and get further coverage. For as little as a 20% increase in your premiums, you can avail of an array of riders that considerably extend your coverage. 

Top 5 Rider options which millennials can opt for along with their Term Insurance Plan:

Here are some riders that are offered by term insurance companies

  • Accidental Death Benefit Rider: 
    If the insured person passes away from an accident during the coverage period, the beneficiary receives an additional sum assured amount. This additional amount is over and above the original sum assured amount. For example, the original sum assured is Rs 70 lakh. With the Accidental Death Benefit Rider, an additional Rs 25 lakh will be given to the beneficiary. The total amount therefore becomes Rs 70 + Rs 25 = Rs 95 lakh.

     

This rider is particularly helpful for those people involved in dangerous occupations or who need to travel very frequently on business. 

 

  • Accelerated Death Benefit Rider: 
    This is helpful if the insured person suffers from a terminal illness. The insured person’s family may have to bear heavy medical costs. If this rider is availed then the family will receive some part of the sum assured before the plan matures.

     
  • Accidental Disability Benefit Rider: 
    This rider is often availed along with the Accidental Death Benefit Rider. Again, it is useful for people involved in dangerous occupations. Suppose the insured person gets into an accident rendering him or her disabled. Then this rider ensures that the plan pays them at regular intervals for the following five to ten years.

     
  • Critical Illness Benefit Rider: 
    The term insurance policy will specify certain critical illnesses that may be covered under this rider. The major critical illnesses covered are cancer, stroke, paralysis, heart attack, major organ transplant, kidney failure, and so on. The insured person will receive a lump sum amount on a valid diagnosis of the critical illness. Following the diagnosis and payment, the plan may either terminate or continue according to the terms and conditions.

     
  • Income Benefit Rider: 
    This rider provides the beneficiary with a regular income following the death of the insured person. This income is paid for the next five to ten years on top of the original sum assured amount. 

     
  • Waiver of Premiums Rider: 
    It sometimes happens that the policyholder is unable to pay the premiums due to disability or income loss. With this rider, the future premiums will be waived. The policy, however, remains active. Thus, if the insured person passes away during the coverage period, the beneficiary will still receive the sum assured amount.

Term Insurance Tax Benefits for Millenials:

Maximise your tax-saving benefits: Secure your family’s financial future and maximise your tax savings with term insurance: 

  • Under Section 80C, the policyholder can claim a tax deduction of up to Rs 1.5 lakh on premium payments
  • Under Section 80D, the policyholder can receive tax benefits on health-coverage riders such as the Critical Illness Rider
  • Under Section 10(10D), the beneficiary can receive a tax benefit on the sum assured received by them. The entire amount received is tax-exempt.

In conclusion

The Covid-19 pandemic has made financial security and insurance coverage more imperative than ever. And although no generation alive today has escaped the negative effects of the pandemic, the Millennial generation has endured the worst impact. Therefore, Millennials stand to gain the most by investing in term insurance today. 

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