Life insurance has never been the most tempting financial option. This is especially true for the younger generation, as most tend to think that they are too young to buy insurance or insurance is not for them, but for the oldies.
20s is the most enjoyable age in a person’s life. Fresh out of college with loads of hopes and aspiration, you take the first steps in your career. Some of you may even go for higher education. When it’s the age of enjoying every moment, insurance hardly fits into your perspective, unless as a tax saving vehicle for your newly earned salaries. As you are planning for the first stage of your eventful adult life, uncertainties like death or illness seem to be a remote possibility, and insurance is the last thing on your mind.
Why life insurance and why now?
Life insurance is often boring in your 20s, but it can provide significant value if you start early. The most critical advantage is that you save a lot on costs.
Low premiums: You may often push your decision to buy insurance into a distant future. But there is a 'cost of postponement.’ In life insurance, premium rates are directly linked to your age. The earlier you buy insurance, the cheaper it is. For example, a 24-year old youth needs to pay about Rs 7,000 per year for a regular premium online term plan for 30 years term and Rs 1 crore sum assured. If he opts for the same at the age of 30, he will need to pay about Rs 9,000, which is an extra Rs 7,20,000 compared to a 24 year old guy!
Insurers offer lower premiums to young people as they are mostly fit and healthy, which automatically implies a lesser possibility of death and risk.
Allows experimentation and evaluation: As these are still early days, you have lot of flexibility to experiment and evaluate! Changing life style and life stage will automatically make existing policies redundant. An early start allows you to keep adding on to the existing policy, so you will always be ready for anything life may throw at you. It will also minimize the possibility of being underinsured.
Longer accumulation period: If you purchase a savings cum insurance plan early in life, you will enjoy more years of accumulation and the advantage of compounding, thus a better possibility of building a larger corpus.
Short-term goal fulfillment: Many short-term plans like mortgage, car loan, student loan, or even credit card debts can be covered by a sensible life insurance policy.
What kind of life insurance should I opt for?
The popular notion about insurance as a financial product is that of a provider of death benefits. Once a death claim is paid to a beneficiary, the person/family can use the proceeds as required. We tend to miss that insurance also provides ‘living benefits’ when the person is alive. The cash value or the proceeds can be utilized to pay for life’s expected or unexpected events, such as retirement income, buying your first home, education, wedding expenses, holidays etc.
Let’s now outline how different categories of life insurance plans can fit your life stage scenarios.
Protection plans: Some of you may be the lone bread earner in your family, supporting your parents or siblings. In such a scenario, a pure term insurance plan is a must, preferably an online term plan, as they are cheaper. There are simple term plans with no frills and only basic covers at extremely low premiums. Insurance companies however, also offer term plans that not only offer a lump sum amount (death benefit), but also period payment to ensure that your family receives a monthly income for a set period of time after your death.
For old people: Death is a universal truth and can happen to anyone. Starting early protects against sudden financial instability for your family or loved ones.
Don’t need it as I am single with no dependants: Life insurance isn't just for your family or your dependants. Insurance helps you to secure your retirement, pay off your education loan, fund your holidays, education, marriage etc
Just a tax-saving instrument: Insurance is much beyond a mere tax saving instrument. It is a core financial security blanket with both death and living benefits to secure your needs during your lifetime as well as after you are gone.
Offers no returns: It depends on the kind of policy you opt for. Term insurances offer no return if you out live your plan. Plans like moneyback and endowment provide living benefits as at regular intervals or lump sum after a specified time.
Benefits family only: As stated above, it is not necessary that only your family has to benefit from a life insurance plan. You can opt for savings cum protection plan that offers returns, ensures your family's future and at the same time makes sure your needs are taken care of.
Savings and Investment plans: You may have no dependants, but may be burdened with an education loan. You may plan to settle down a few years down the line, or plan for your first home, or holidays etc. In these kinds of scenarios, you should opt for insurance with living benefits – i.e saving cum protection plans such as ULIPs or traditional endowment plans that will
You should start with a simple term policy and slowly move to savings and investment plans to take care of your life stage goals. A visit to a certified financial planner is advisable for right advice and direction.
With the understanding of how life insurance fits into your plan, it's a relatively easy thing to fix. Starting to invest early will definitely make you wiser financially than your friends who don’t.
Mr. Tripathy joined HDFC Life in 2004 and has been responsible for Marketing Strategy, Brand Planning, Advertising, Communication & Media, Customer Insights, New Product Development, Product Life Cycle Management, Online and Digital Strategy, E-Commerce, Customer Analytics, & Corporate communication. He started his career with GCMMF Ltd. in 1992. Since then he has worked with various reputed organizations like Frito-Lay (PepsiCo), Mattel and Reliance Infocomm before moving on to his current role at HDFC Life.View Complete Profile
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