On any given day, you may come across several TV commercials, newspaper and online ads, hoardings and magazines trying to tell you about the importance and benefits of life insurance. Yet, how many people take action and buy a life insurance plan when they see those ads?
Going by available data, they are still very few and far in between. According to a report published by IndiaSpend in January 2019, 75% of India’s population is living without any form of life insurance protection. That is close to 99 crore people in this country, who are putting their family’s future in danger [1]. It is understandable that many among them may not be able to afford paying life insurance premium, but even then, there are millions who can, but still do not buy it.
Downplaying the importance of life insurance in our lives is dangerous. That should be even more evident now with the deadly impact of the COVID-19 pandemic. The message is loud and clear: Do not delay in getting life insurance protection. To emphasize that point, know why you should purchase life insurance early in life and the advantages of life insurance plans.
Why should you purchase life insurance early in life?
There are several advantages of buying life insurance plans early in life. Here are a few that come to mind.
• Low cost of premium
Do you know that the cost of life insurance premium grows in direct proportion to your age? In fact, premium costs can increase by as high as 12% for every passing year if you are in your 50s. If you are in your 40s, it will increase by around 5% [2].
• Higher disposable income
When you have just started in your career, you are likely to have more disposable income to invest in insurance and other investment products because you do not have a family to take care of. Thus, you can invest in life insurance plans that provide decent returns such as ULIPs to build a substantial corpus.
• Power of compounding
When you are utilizing a life insurance product for protection as well as investment starting early makes a lot of difference. One of the biggest advantages of starting early is that you can fully utilise the power of compounding and build a significant corpus over the long-term.
Benefits of life insurance plans
• Helps in meeting life goals
Death benefit received by the nominee in case of the policyholder’s death or the maturity benefit upon survival, helps the insured and his family in meeting life goals. Upon a sudden demise of a sole earning member of the family, a life insurance plan ensures that the surviving members have the means to fulfil all life goals such as child’s education, marriage, buying a home, paying off debt, etc.
• Helps in generating wealth
Life insurance policies are not only designed for life protection but to assist the policyholder in generating lasting wealth for the future. Life insurance plans effectively help meet the twin goals of life coverage and investment. ULIPs, pension plans, child plans, whole life insurance plans and endowment plans are good examples of insurance cum investment tools.
In fact, life insurance investments such as ULIPs give policyholders the best of both worlds. With ULIPs, you also get the freedom to select the funds of your choice based on investment goals, horizon and risk appetite.
• Tax benefits
We all know that improper tax planning can lead to significant erosion of our wealth if we are not careful about investing in the right instrument. Life insurance plans such as ULIPs are one of the best tax-saving tools available for taxpayers. Apart from that, you can also save taxes by buying term insurance, whole life insurance or any similar life insurance plans. With life insurance products, you can avail income tax deductions up to Rs. 1.5 lakh in a financial year, as well as receive tax-free payouts, subject to provisions stated under Income Tax Act, 1961.
Conclusion
Though life insurance benefits people in all age groups, it is especially beneficial for millennials because they have the advantage of age. It is important for Indian youth to understand the importance of life insurance because they do not take such things seriously.
A recent IPQ survey carried out in 15 metros and Tier 1 cities revealed that only 20% of youths had term insurance protection. Those in the age group of 25-35 spent more on travel and luxury items and life insurance is least on their priority list. 50% of those surveyed said that the thought of buying life insurance never crossed their mind. This mind-set needs to change since our country’s and their family’s future depends on the younger generation [3].
Sources:
[1] https://www.indiaspend.com/988-mn-indians-do-not-have-life-insurance-those-who-do-are-insured-for-7-8-of-whats-needed-to-cover-financial-shock/
[2] https://www.investopedia.com/articles/personal-finance/022615/how-age-affects-life-insurance-rates.asp
[3] https://economictimes.indiatimes.com/wealth/personal-finance-news/only-3-in-10-urban-indians-buy-term-insurance-plans-survey/articleshow/74477381.cms
