If you are between 20 to 30 years of age, what is your strategy of buying term insurance ?
Most of the insurance companies will provide term insurance for a maximum of 30 years and till 60 years of age. So if you are young, should you go in and buy a term insurance for the maximum duration, 30 years ? If you do that, there are chances that your cover will expire before you reach 60.
Will any insurance company provide you cover at that age if you need it ? One’s heath deteriorates when one ages. If you happen to require term insurance cover at say, age 55, the premiums will be very steep as compared to when one is younger.
Example
Let us take an example to see what happens if we take insurance at a later age.
Suppose X takes a term insurance of Rs 25 lakh at age 20 for the maximum term, 30. This cover will expire when he is 50. At 50, he takes another cover for 10 years to have himself covered till age 60 for the same amount. This is depicted by table 1.
Now suppose he tweaks his strategy by opting for a small duration cover initially, that is, he gets cover for only 10 years to begin with. That will cover him till age 30. At age 30, he then takes another cover of the same amount for the maximum term, 30 years. This is shown in table 2.
| Table 1 | ||||
| Age | Term | Cover From | Premium | Total |
| 20 | 30 | 20 to 50 | 3,419 | 102,570 |
| 50 | 10 | 50 to 60 | 11,581 | 115,810 |
| 218,380 | ||||
| Table 2 | ||||
| Age | Term | Cover From | Premium | Total |
| 20 | 10 | 20 to 30 | 3,391 | 33,910 |
| 30 | 30 | 30 to 60 | 4,549 | 136,470 |
| 170,380 | ||||
In both cases above, X is covered from age 20 to age 60, however in the former case he takes a new cover at age 50 while in the latter he takes one at age 30. Let us check what the figures are in both cases. The indicative premiums are in the table below. The total premium X would have paid in the first case is Rs 218, 380/-.
In the second case, the premium paid is Rs 170, 380 only, which is around 22% less that in the former case.
Learning :
As an individual ages, the premium that he will pay for term insurance to the insurance company shoots up as chances of mortality increases with increasing age. In fact, the insurance company may even refuse cover. Take term insurance at a young age and use the strategy advised above to decrease your premiums.
First of all, nice blog…..
But regarding this post; with all due respect, I beg to differ.
One important point is, if you start investment planning at young age, you are expected to accumulate enough wealth over a period of time and your life-insurance requirement may not be as much at old age as it would be at very young age.
However, Let’s assume that we do not consider one’s assets while deciding insurance requirement.
If insurance is determined w.r.t. one’s income and lifestyle (and liabilities, of course), the insurance requirement will increase over a period of time as the expenses increase due to inflation and upgraded lifestyle. It may make sense to get another life-insurance after half the duration of first insurance.
In this example, somewhere around age of 35. Insurance of Rs 25lakhs will not be sufficient 10-15 years from now (if we do not consider wealth created so far). Hence going for another policy (while the first one continues) at that stage will invariably be required.
@Sarang, Thanks for your comments Sarang, its always good to see a different view of things. In a way you are right, the need for a new insurance is there more when one’s life stage events (say birth of a new child) happens. In fact, this is what happens practically. If such cases, the laddering suggested in the article will not work.
The information above is meant to demonstrate that there is a way premiums can be saved and on a case to case basis, if it can be applied, it should.
Btw, I like your blog. And kudos, your comments are intelligent. You seem to be an informed investor.
I slightly differ with this article. I feel that the insurance is being taken only to cover any eventuality to the insured. The person may also get some illness after the first insurance was taken at 20 years, but before 30 years. The insurance companies may either refuse or increase the premium for the insured. In that case, he may be left out without a policy after 30 years.
To safeguard against these uncertainties, the policy buyer should opt for a full period (30 or 35 years) and then review the same again after ten years say mid 30s. If you are able to get a term insurance again, you may opt to drop the present insurance, or keep it as a top up.
I view insurance policies only as a risk against uncertainties, like sudden illnesses or death.
@Srinivasan, Of course, your expectation of insurance policies are correct. You do have a point in what you mention. Investors can use any method, it is not that for everyone the policy will be rejected.
@Srinivasan, Agree, well said Srinivasan!
Dear Sir;
My name is Vinay. I am 30 years old.
I have borught a Kotak offline policy last year for 50 lakhs.Taking inot account the inflation rise in years to come. Thye asked for details of my fmaily. My father died at an early age 45 years. The reason of his death are not kown. But I wrote normal death. As no postmortem was done.I had mentioned this to the doctor who took my health check up.
Would this be a reason of my claim rejection; I am only suggesting a if case.
Other query is that do they grant you the claim amount if your die any where in the world. Suppose I go for a forreign job and this mishap happens.
Please answer.
Regards,
Vinay.
@Vijay, The first point is fine. I do not think there are any issues in there.
Also, I do think that death anywhere in the world is covered. But do verify with them in writing.
@Radhey Sharma, “…do verify with them in writing”: Does this means we need to explicitly ask the insurance company to issue us a confirmatory email (or on their letter-head)? I’m not sure whether anything beyond what’s mentioned in the policy documents is provided. Please let me know if you are aware of any additional documents/clarifications being issued by them.
@Jaswinder Singh, It is always wise to keep in writing all the communication you do with your insurance company.
I generally take prints of important emails and stick them with the original policy docs – that way, behind me, my family knows what went on.
I don’t have a list of what needs to be re-verified as you typically don’t need that but anything important, document it !
very informative post..
Which is the best term plan according to you?