Life Insurance Needs At Different Age Levels

Are you the sole earner in your family and have dependents? In that case the most important move of your life would be to acquire a Life Insurance Policy under your name. So whether you are at 20, 40 or 50 you are in need of a Life Insurance policy. This will ensure the future of your family members after your retirement or in your absence because it replaces your income. It will not only provide a financial security to your loved ones but also impart peace of mind. Most correctly said it is the secondary source of income for one and all. Hence, possessing a Life Insurance Policy is more of a necessity than any other investments.

Generally, we approach an agent who will be able to suggest us an apt policy. However, in most cases either they propose something that covers us for our entire life or something that guarantees exorbitant returns in minimal period. Well, just to be clear firstly something that sounds too good to be true needs to be introspected. Secondly, do you really need coverage for your entire life? Have you thought of this ever that how will you pay the premiums after you retire? Is it feasible enough and if it does then if it’s really worth it? So gain basic insight on the life insurance products even before reaching out to an agent.

However, one of the main aspects to analyze before buying a policy is your need of coverage. So just how much is enough depends entirely on one’s age. But, before we get in to that topic we will first see what are the types of Life Insurance Policies in India and their definitions.

Different Types of Life Insurance Policies

  • Term plans – this insurance coverage only target to cover you till you are alive and does not offer any returns on investment. This is a pure insurance policy which requires you to pay the premium regularly till its termination. In case of death of the policyholder the Sum Assured is handed over to the dependants. However, if you survive you do not get any returns. This aspect makes it the cheapest insurance coverage. We will have a look at the different variants of term policies and their need based on age:
  1. Term policies that come with a premium return in case of the survival of the policyholder, with or without interest. For example if you have been making a payment of $350 for 25 years, on your survival after 25 years you will receive a return of ($350 X 25) that is $8,750.
  • In such cases it is better to opt for this policy at the earliest age possible. Considering the increasing trend of inflation rate the total return is not going to be much even if you start at the age of 25 and end at 60. The return may still be inadequate and the premium will be on a higher side if you are looking at it from the return on investment perspective. What matter here is that you are still getting a return with interest along with full coverage.
  1. Policies that require payment of only a single premium for the entire coverage, for example State Farm, USAA and more.
  • If you pay the amount upfront at the age of 25 say $300 for 25 years that comes to Rs. $8740. You can benefit from this only if you survive for the period and in case you are not such a great regular payment maker or with irregular job patterns. However, this can be a loss proposition if you die before the term ends, so the rest of the premium goes waste. Also the extra money spent could have rather gained interest by other ways.
  1. Another form of single premium policies is with a limited payment period. These policies give you the flexibility to make a lumpsum payment every 5 or 10 years.
  • These policies are apt for the younger age group who has the capacity to save now rather at an older age. However, most obviously the premium remains higher than the regular payment structure.
  1. Regular premium payment policies where you can pay annually till the termination of the policy.
  • More commonly known as vanilla cover this is the most common form of term insurance that can be availed by all age groups between 20 – 60 years. However, in these policies it is better to start early if you have dependants so that you can assure the highest amount for your family after your death. Also, the younger you are the lesser is the premium and it goes higher with age.
  1. Insurance policies with increasing cover are quite popular option in the recent times. This covers the aspect of inflation over the years which can eat up your coverage amount in the long run.
  • This again is apt if you start younger because it will ensure a higher return by the end of its term and will meet your needs at the older age or post retirement. Premium will certainly be higher if you are targeting a return of one crore but will not exceed a little more than 50lakhs, however, the regular Smart Shield policy ensures enhanced insurance coverage with the same premium.
  1. Loan protection insurance covers home loans. The coverage is equal to the loan outstanding and reduces with the loan amount as it is paid off. These policies require a single premium payment in lumpsum ensuring that the debt is not carried over to the dependants in case of the death of the policyholder.
  • It can be a great option for the younger lot who has a disposable income which can be rather be invested in this kind of policy. They are more prone to take up home loans hence is apt to cover their dependants. However, the same may not be feasible for the people above 40 as there are very few who take up home loans at that age or they may not be able to pay it off within the specified time.
  1. Staggered payouts are another option that allows you to make payments over 10 to 15 years. This distributes the returns by giving out monthly payments and also a lump sum amount in case of death. For example Aviva i-Secure gives you yearly payments at 6% for 15 years and 10% sum assured in case of death. This ensures good value of the money paid and for dependents who cannot afford a whole amount at once. Of course the premium is higher for such policies.
  • These policies are considered on the basis of growing inflation hence, sooner it’s started the better. It will meet the requirements of both younger and the elder generations due to its nature of periodic returns. But it covers the short term plans and the death coverage is considerably low wherein the younger crowd may need higher death coverage.
  • Endowment plans – These policies assure a return along with the sum assured in case of death and in case of survival you get the sum assured. In such policies the premium is levied with extra charges to ensure the returns along with the sum assured. Definitely an expensive option compared to term policies wherein the estimated returns is only about 5%. It is mostly seen as an investment option
  • This is surely an option for the younger generation rather than those above 40 because the premium paying ability will be higher at an early inception age. This will allow you to invest for longer period to get higher returns. This is certainly not a great option to start late. These work best when taken for 15 to 20 years.
  • Unit Linked Insurance Plans (ULIPS) – These work as mutual funds, that is again more as an investment plan. The premiums were mostly invested in debt instruments and a only a minor part went to the coverage. However, such policies lost credibility over the years due to its shaky returns and exorbitant administration charges.
  • This was again most favored by both the age groups, however, worked well for those crowds who wanted a lesser coverage and higher returns. This went well with the age group beyond 50 where the need was more towards meeting short term goals rather than comprehensive coverage.
  • Whole Life Insurance – These are targeting for those sections who want to cover themselves for the entire life or want a return after a certain age when they stop paying the premium. They can en cash the sum assured with any bonuses or continue being covered till they are alive.
  • As the name suggests this is more for those elderly section who either wants an income source after a certain age or wants to be covered for life ensuring that the sum assured goes to their children after their demise. However, in such cases either the policyholder should be in a position to pay the premium himself after retirement or can be paid by any other family member.
  • Money Back Policy – These policies provide returns at regular intervals irrespective of the sum assured that will be paid to the dependents on the death of the policyholder. Premiums are naturally on the higher side due to the assured returns. However, if seen on a long term basis as for example if you buy a policy of $50,000 for 20years, you will receive $60,000 by the 15th year with 20% return. However, you will receive only $40,000 on maturity! Hence, in order to get the sound returns along with the full coverage you have to die before the 20th year!
  • These plans were more suited to be started at a younger age to receive maximum returns. But the higher premiums which are even higher than the returns make it a loss proposition compared to term policies.
  • Pension Plans – These are the so called popular retirement plans which are ruling the insurance market as they are purely investment oriented. These include payment of premiums either in lump sum or periodically depending on your needs. The amount is first allowed to accumulate and then invested in securities followed by which your returns begin between the age of 40 – 70 years. The payout period is decided by you whether it should be per month, every three months, six months or annually.
  • As per the nature of the policy since it is targeted as a retirement plan it s better to start as early as possible to enhance the returns.

So as per the above analysis the common factor is age which plays the most important role. If you buy insurance at a younger age it will not ensure higher returns (if it’s a return based policy) in the long run but you also pay considerably cheaper premium. With growing age the premium goes higher. However, it completely depends on one’s requirements and affordability as to when he/she wants the cover. If you do not have adequate disposable income at a younger age it may not be suitable to get a cover. So get covered the sooner you can and ensure a secured life.

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