Everyone wants their family to be hale and hearty. Even though most people don’t directly associate happiness with financial stability, it nevertheless plays an important part. Being an earning member of the family, it is your responsibility to ensure the financial stability of your family. A term insurance plan can be an efficient tool to financially ring-fence your family in your absence.
Like most insurance products, term insurance has a minimum and a maximum eligibility age. Similarly, like many popular beliefs, there are a lot of misconceptions related to term insurance such as the maximum age to buy a term plan is 50 or 60 years or term insurance is only required till retirement. Most term plans still provide coverage till the age of 70 or 75.
What is the term insurance age limit?
It is possible to buy a term policy till the age of 65 and you can opt for coverage that continues up to 99 years of age. Since a term plan can be bought anytime between 18 and 65 years of age, let us take a look at how to buy a term plan at different life stages. Analysing term plans as per the life stage of the insured is critical as requirements change with age, which requires a proportional modification in the coverage.
When in the 20s
20s is the time when most people graduate and get new jobs. But many people enter the job market with a hefty education loan. In the initial phase, salaries are low and several years may be required to pay back the loan. If the insured meets with an unfortunate accident, the entire liability shifts to his/her parents or family. If one has planned well and has a term plan in place, it could protect the parents from such financial uncertainties and help them pay off the debt from the amount they receive as nominees of the policy holder. One of the term insurance benefits is that it is cheaper when you buy it at a young age. The risks of disease or death are low when a person is young and so insurers offer lower premiums when the life assured’s is young. You can get substantial coverage at a relatively low price if you buy a term policy in your 20s.
When in the 30s
The 30s are exciting times. It’s the decade when most people get married, have kids, buy a car and enjoy life with family. Liabilities are the by-products of a growing family. They cannot be avoided as you will take a car loan or a home loan to finance the car and the house. Also, children will start going to a school and for some people, even their parents may become dependent on them. A car loan or a home loan is a long-term commitment and a significant liability. Moreover, you will become responsible for your children’s and spouse’s financial future.
Even though your income will rise substantially in the 30s, just savings may not be enough to cover the liabilities as well as take care of your family’s needs in your absence. Buying term insurance in your 30s will help you take care of several responsibilities. It will help your family take care of the liabilities as well as other responsibilities such as children’s education in case of death of the primary bread earner.
When in the 40s
In the 40s the nature of responsibilities vary. While car loans are more likely to be paid off by the 40s, some people may have home loan instalments to pay. The overall liabilities may reduce, but other responsibilities will come. Every parent wants the best for their kids. When children grow up, ensuring quality higher education becomes pertinent. Many children may opt for higher studies from a foreign country. To ensure that your children’s dreams are fulfilled even in your absence, term insurance is necessary. If children’s education is your only concern, there are tailor-made term plans available in the market.
The other major responsibilities in the 40s are the medical care of parents and retirement planning. Your parents may require a significant sum to take care of their health in their old age, a term plan will guarantee that they have access to the best of medical facilities even in your absence. Buying a term policy in the 40s will also cost you less as compared to its purchase in the 50s as the premiums witness a substantial rise when you buy a term plan just before retirement.
When in the 50s
If you haven’t bought a term policy till your 50s, it is time you get one without a delay. Your children may still be studying and you may be nearing retirement. In the 50s, with age, risk of falling prone to health issues may increase. Term insurance plans come with various riders, including cover for critical illnesses. Riders are optional features that are not a part of the standard policy but have to be additionally chosen. A term plan with cover for critical illnesses becomes important as medical insurance covers only the hospitalisation charges, but critical illness cover in that term insurance helps in taking care of other expenses too.
The lifestyle of your spouse is also your responsibility, which makes term insurance a critical tool in the 50s. As soon as the 50s are over, you may not have the cushion of a well-paying job, so it’s better to secure your spouse’s life with term insurance with adequate coverage. Please note that when you buy a term plan in your 50s, you will have to opt for a high coverage to ensure continuity in the standard of living. You can also buy a term plan with joint life cover that will cover the spouse under the same policy.
When in the 60s
Even though some insurance plans have maximum age at entry of 65 years, it is not advisable to wait for the 60s to buy the plan. While the popular perception dictates that you don’t require a term policy after you retire, several factors such as increasing life expectancy and post-retirement employment options have nullified the common belief. Many people choose to work after retirement and contribute to the household income and the term insurance plan is essentially taken to replace a source of income in the absence of the earner. Many people may have to support their children even after they retire or may have some unpaid liabilities. A term insurance plan ensures that your children don’t face any financial constraints and the liabilities are taken care of.
One can buy a term plan at any stage of life, but would it be a smart decision to buy one in your 60s? Firstly, you will pay a very high sum for a cover which you would have got at a fraction of the cost in the 20s. Moreover, the 30s and 40s are some of the most critical years, when new members get added to the family and the responsibility increases exponentially. Living without an insurance cover in the 30s would be foolish, which makes buying a term plan at a young age very important.
Buying a term policy at a young age has several benefits -
1. Premiums are low
When you buy a term plan in your 20s, you have to pay a lower premium for a cover worth Rs. 50 lakhs. A similar cover could cost you more in your 40s or 50s. What is the reason for the disparity? In simple terms, it’s the risk associated with insuring you. A person is healthier at a young age, while the chances of contracting critical diseases like diabetes, cancer increase with age. A person may also get afflicted with diseases related to lungs and heart due to a sedentary lifestyle and rising pollution. Buying a term plan at a young age protects you against any increase in premiums later in life. Once you contract a disease, insurers may altogether reject your request on the grounds of having a pre-existing medical condition. Considering the monetary benefits, it is advisable to buy a term policy as soon as possible.
2. Family members need it
When you are young, you get married and start a family. After marriage, it is not just about your parents and you, but also your children and spouse, who may be completely dependent on you. As discussed earlier, you may also take up several liabilities like a car loan or a home loan. Buying term insurance later in life, when you may have paid off all the dues would have no value for your family.
3. Provides flexibility
The needs of a family change with life stages. Paying off education loans may be the most pressing concern in the 20s, while children’s higher education may be in the 50s. When you take a term plan in your 20s, you opt for a cover in accordance with your existing income. The term insurance cover chosen in the 20s may not be adequate for the 30s. Some term insurance plans come with an increasing cover option, that boost the cover by a certain percent at regular intervals. With the increasing cover option, you do not have to worry about being underinsured and you can live a stress-free life.
4. Term Insurance Tax Benefits
Suppose, investing in a product helps save you a penny every day, would you save more money in 10 years or 20 years? Everyone knows the answer. Investing in a term plan helps you save taxes. If you buy a term plan when you are young, you will enjoy the benefits of tax savings for a longer period and hence save more. The premiums paid for a term policy are eligible for a tax deduction of up to Rs. 1.5 lakh in a year under Section 80C of the Income Tax Act, 1961. Additionally, the benefit paid to the nominee through a term plan is tax-exempt under Section 10(10D) of the income tax laws if the annual premium is less than 10% of the sum assured. The said deductions and exemptions are subject to the provisions stated in the Income Tax Act 1961.
Buying a term insurance policy is crucial to lead to a stress-free and financially secure life. However, you should take into consideration some points before finalising a term plan. The cover should be linked to the annual income and the financial goals of the insured. Since term insurance is cheap, many people opt for a cover they don’t require. Some people also choose a short policy term in order to pay lower premiums. But if you have a short policy term, you will have to buy new term plans at the end of the term. A new term insurance plan may not offer you the same premiums and you may end up paying more.
Since the financial stability of your family is at stake, always do thorough research before you buy the term policy. If your family doesn’t get the sum assured in your absence, it would defeat the entire purpose of buying a term plan. Your family may be deprived of the sum assured also if you fail to disclose information about pre-existing medical conditions or your smoking habits while buying the plan. In a nutshell, conduct thorough research, understand the terms and conditions and buy term insurance when you are young.