Have you bought life insurance yet? If yes, that sounds wonderful. You have made the best decision of your life. But why did you get it? Did you buy the policy because you were told it is the best thing one should do or something one should get early? Or was it the tax savings part that persuaded you? If not any of them, was it the “returns”? I hope your decision was not based on “returns” or tax savings. Life insurance is not and shouldn’t be bought for those reasons ever. In this piece, we shall see why you need a life cover and when you should get it.
When Is The Right Time To Buy a Life Insurance
Life insurance is an insurance product that pays out a lump sum (sum assured) upon the policyholder’s death. In return for the protection provided by the insurance company on your life, they charge you a premium which is to be paid throughout the policy term. The premium depends on the sum assured or the cover you opt for and other factors such as your age, gender, lifestyle, occupation, etc. There are different variants of life insurance that may provide policy benefits during the policy tenure or when the policyholder survives the term. The products that do not have such features are called pure protection products. Terms plans are a form of pure protection product that does not contain any cash value. Cash value is basically a component of your premiums that goes towards savings and earns interest over the policy term. So when is the right time to buy life insurance?
The sole objective of buying a life insurance policy should be the protection of dependants against the breadwinner’s death or loss of earning capacity. Term plans do that in the best possible way, and hence, our focus in this blog would be on them alone. Policies like endowments and money backs should be avoided due to two reasons – one, they will not provide you with the coverage you actually require. Even if they do, it would be at a very high premium. Second, if you believe that life insurance policies yield handsome returns, you have been misled or are ill-informed. Given the vastness of the investment universe in India with effective investment planning vehicles like mutual funds, NPS, FDs, RDs, small savings schemes, etc., it is not smart to utilize products that are ineffective in both savings and insurance coverage. Insurance premiums should be seen as an essential expense.
Life insurance should be brought when you have financial dependants or liabilities. A life insurance payout can help your dependants to pay off liabilities and sustain themselves financially upon your unfortunate demise or loss of earning capacity. It can help support the day-to-day living expenses and financial goals of your children or loved ones. Your dependants can be anyone you support financially on a regular basis. A Spouse, parents, siblings, children, etc., are some of the common dependants an individual has. In the absence of adequate cover, your dependents would be left with large financial burdens (due to liabilities) and may either fund their expenses through loans or support from relatives. A well-planned life insurance cover and its usage can avoid these scenarios.
Life insurance premiums also increase as you age due to the rise in risk factors. Buying a cover at a young age is recommended. Delaying the purchase can increase costs and even leave you with no coverage. Insurance companies can reject or make one undergo medical tests during the underwriting process before accepting the risk. A term plan taken at a young age can help you lock in the low premium throughout the term and save a lot of money.
If you don’t have a life cover even though you need it, get it at the earliest. Be mindful not to fall for the common pitfalls discussed earlier, and buy a good term plan with a cover that is at least 10-15 times your annual income. Getting a life insurance needs analysis can help you determine an accurate figure. Life insurance needs analysis is carried out via the two most common approaches –The Need Approach and the Human Life Value Approach. They take into account the current expenses and income needs of the dependants, financial goals, liabilities, etc., to ascertain the approximate cover.
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– Nischay Avichal
