“Fun is like life insurance; the older you get, the more it costs.” — Kin Hubbard
Frank McKinney Hubbard was an American cartoonist, humorist and journalist, and being those things, he probably said the line above in jest. But funny as it is, it is not any farther from the truth. An older person can probably have fun at the same cost as a child, but can he buy life insurance cheap? Nope.
The older we get, the costlier life insurance gets. This is why you should buy life insurance at an early age. It is nothing else but plain mathematics and a simple way to get more by spending less. We all like that, don’t we? Check out the table below that shows typical term insurance premiums for a non-smoker male. Smoking is not only injurious to health but also to insurance premiums.
Can anything be any clearer than that? Life insurance is cheaper when you are younger. You are also more likely to have fewer health issues and other complications, which will make it easier to get that insurance cover.
The reasons are all in favour of getting life insurance at an early age, but yet, it is something that most people are lazy about. That’s because the purpose of life insurance is to keep your dependants financially protected in the event of your untimely death. But death is not something people in their 20s think about. Moreover, rarely does anyone in their 20s have dependants. Hence, life insurance becomes a thing you buy when you’re older.
But that is no reason to delay getting life insurance, because even if you don’t have dependants now, you will in the future. So better to stay prepared for it and buy insurance when you’re able to get it cheap.
That said, life insurance should not be bought blindly. The best life insurance is pure term insurance. This is low-cost insurance that offers life cover and nothing else. Products like endowment plans and ULIPs, that mix insurance with investment should be avoided. Your goal while buying life insurance is to allow your family to be financially protected, not to earn some sort of a return out of it. Insurance should be treated as an expense and you should consider yourself lucky if it goes entirely to waste.
Before you go ahead and buy term insurance, you should keep the following points in mind.
- Compare plans: The annual premium for term insurance varies from company to company. If you compare plans, you might be able to get a good plan for cheap. But don’t go just by the premium amount alone. Buy term insurance from a company that has a good claim settlement ratio.
- Claim tax-saving deductions: Term insurance premium that you pay is eligible for tax savings under Section 80C. Make sure you claim this deduction at the time of filing your income tax returns.
- Make honest declarations: At the time of buying life insurance, you will be asked to make health-related declarations. You should make the same in all honesty as false declarations can later make it difficult for your family to claim the insurance.
All said and done, term insurance is a very important aspect of being financially healthy. In fact, term insurance is something you should get even before you begin investing for long-term goals. Consider getting an insurance cover for at least 10 times your annual income and get it early.
A word of caution — Do not mix insurance and investments. Do not buy ULIPs or Endowment plans. We have written about it in the past. Do not buy them for tax savings [80(c)] either. Go for ELSS funds instead.