A term insurance plan needs to be reviewed and added to at different stages in life
We all will agree with the premise that our financial goals and needs keep changing at different phases of our lives. To stay financially secure during all these phases, it is important to have a term life insurance plan. Term insurance that provides a huge life cover at a very small premium (For example ₹1 crore life cover for next 30 years at ₹500 per month) is a critical tool that provides a safety net to ensure the financial stability of the family. To keep pace with changing financial needs, it is also important to keep reviewing insurance plans as well.
Term insurance is never a one-time decision and it is important to review the coverage as you age. This is important to make sure that the future needs of the dependents are met adequately. Here is a quick look at the stages of your life when you should review term-insurance cover.
Young and single
Your career has probably just begun. While you may feel that you do not have any dependents unless your parents have already retired or you have a sibling who is dependent on you, this is the right time to start insurance planning from multiple perspectives. A very simple and fundamental aspect that many do not realise is that you can get insured easily when the perceived risk is low but the aspect is ignored by most. Also, when the risk is higher, everyone tends to run towards insurance but it gets tougher to get covered.
At a young and healthy age, you can get a term insurance very easily with very few checks. Even the premium will be very low. As you grow older, there is an inherent risk of health-related issues and any external accidents that may make it tough to get cover at a later stage at a good price. Take advantage of the younger age and health condition and purchase a plan that can cover yourself and an education loan, if any. In addition, while your parents may not be dependent on you at this stage, you would have, for sure, wanted them to live their retired life without a tight financial budget or live in a much better financial position than your income would have ensured. A term insurance policy that you take at such an age can take care of this aspect in case of any unforeseen event.
When you turn about 30, chances are quite high that you are married and have very young children. Salaried professionals would have reached mid-managerial level and self-employed individuals would be enjoying a stable income inflow. On the personal front, you may also have retired and dependent parents. At this point, you would be surrounded by multiple liabilities and it is important to have adequate coverage to pay for all such liabilities. It is important to have a significant cover to pay for all possible expenses of your family. Get your coverage enhanced to ₹1 crore for overall protection and coverage up to your retirement age or your earning capacity.
Late 40s, early 50s
When an individual reaches late forties and early fifties, he or she is likely in a senior managerial role while business owners are potentially looking to expand their businesses. At such an age, the income of an individual increases significantly and there is a proportionate rise in expenses as well. This is mostly because the children are grown up and are at the stage of incurring major, one-time expenses such as their weddings or considering higher education. In addition, it might be possible that you take a loan for such expenses or buy a home for your family. All these expenses make it essential that you enhance the sum assured of your term cover so that all expenses are met comfortably even in your absence. At this stage of life, the average person is best advised to get term cover worth at least ₹1.5 crore.
The right cover
Ideally, when buying a term insurance plan, it is always advisable to buy a policy with a coverage amount/sum assured up to 12 – 15 times of your annual income. Apart from this, there are other factors that must be given due consideration when deciding on the coverage amount. Forgetting to factor in loan outstanding is common as the EMI is automatically debited monthly but the outstanding loan may still be significant. Retirement planning for the spouse, medical emergencies and everyday expenses all need to be thought through. It is important to know all your liabilities while planning to buy a term insurance plan.
The need for term-insurance coverage usually peaks when you are in the middle of your career and have liabilities to pay. It is therefore advised to buy a plan as early as possible so that you can lock in the highest coverage possible at minimum prices. Waiting to buy term insurance till liabilities add up on your shoulders may sometimes prove costly.
(The writer is Business Unit Head-Term Insurance, PolicyBazaar.com)
Source: Read Full Article