- Written by Atanu Sengupta
You may be young and free right now, but your obligations will increase as you become older. That is undeniable. If you have children, you will need to fund their education, as well as your own retirement and care for aged parents. That, too, is a near certainty.
With inflation and life’s uncertainties in mind, how much will you be able to save for your family’s future if you wait till later in life to start preparing? This is where life insurance can benefit.
1. Is Age Just a Number?
The proverb “age is simply a number” is well-known. However, when it comes to life insurance, the most essential aspect that decides how expensive or affordable your coverage will be is your age. The age at which you get an insurance policy will decide whether you pay a high or low premium.
When you’re young, you have a lot of advantages. Insurance premiums are lower when you’re in good health. Because a 20-year-old is significantly healthier than someone twice his or her age, he or she pays a smaller premium. Because their profession is on the rise, the premiums will become even more affordable as their income rises. It’s worth noting that the premium remains the same during the policy’s term and does not rise with age.
2. Young People Are More Susceptible:
Younger people, particularly those just starting out in their careers, would have limited savings. They do, however, have the biggest number of dependents and responsibilities. This could include parents who are nearing retirement, younger siblings who need to be educated, or even grandparents who are suffering from serious illnesses. Debts might have to be paid off, or there may be a huge family event coming up, such as a wedding or the birth of a new baby. The number of dependents compared to earning members is unbalanced.
A younger person’s chances of having sufficient resources to cover a financial emergency caused by their death, illness, or disease are little to nothing. As a result, insurance is the best way to safeguard their family’s financial security. When buying risk covers, this is a key factor to consider. Keep in mind that the earlier you buy, the better, because the premium is cheaper. Insurance will safeguard your family’s future in the event of an unforeseen event.
Similarly, life insurance can help in the structuring of systematic savings and the allocation of funds to specific purposes. This will assist you in meeting both planned and unplanned expenses, as well as critical and urgent expenditures. What exactly does this indicate? Consider the case of putting money aside for your child’s schooling. Long-term financial policies, such as savings linked insurance plans ensure compulsory savings for a specific need and lock-in until maturity.
Most importantly, it enables self- or insurance company creation of a corpus in the event of a financial emergency caused by death, disability, or disease. The insurance policy’s rigidity will also ensure that the money set aside for the child’s education is not spent on a desire or for rapid gratification, which will be regretted later.
These features, benefits, and advantages make life insurance a compelling reason and a worthwhile proposition for someone in their twenties to begin right away.
3. The advantages you stand to gain:
The benefits of starting early include the following:
Your health score lowers the cost of your insurance policy.
Because health is a major factor in determining premiums, yours will be lower, making the coverage more affordable. If you’re in good health, you can even be exempt from all of the medical exams that are required to qualify for the coverage.
The Power of Compounding
When both your base capital and the income earned on it are re-invested to enhance your wealth, this is known as compounding. This is a feature of ULIPs. The returns on your ULIP investment are enhanced the longer you hold them. Compounding may boost wealth significantly over time, which is why purchasing a ULIP policy at a young age makes financial sense.
Supporting Dependents with Financial Security
The primary goal of buying insurance is to provide financial security for your family. If something were to happen to you, they would be financially insecure, as the likelihood of having a contingency plan at a younger age is much lower. A term insurance policy bought early in life can protect your family and ensure that they can continue to live comfortably without sacrificing their way of life.
Income Protection in the Event of a Possible Loss of Income
The pandemic has taught us how quickly things can change. Whole life insurance policies contain options that can protect you for the rest of your life, up to the age of 99. For example, the lifetime income plan guarantees you a steady stream of money that can be used to cover bills, pay off debts, supplement another source of income, or even plan for your retirement years. It’s all about securing your future earning potential, and it’s more reasonable and doable at 25 than it is at 50.
4.Types of Insurance That Can Cover You for Life:
You must select an insurance coverage based on your future objectives and needs. There are five main types of insurance, each of which serves a particular purpose:
i) Term Plan: This is the most basic and cost-effective sort of coverage. Term insurance is a pure-risk plan that protects your future wages and the financial security of your family in the case of an accident, illness, or natural death. A term plan is named from the fact that it covers your life for a set period of time, usually between 10 and 40 years. The policy will terminate at the end of that period.
ii) Whole Life Plan: Whole life insurance covers you until you’re 99 years old. The difference between whole life and term insurance is that whole life insurance offers a guaranteed payout because it covers an individual until they reach the age of 99. (few will rarely live past this). There is a death benefit, a survival benefit, and a maturity benefit in these plans. However, the premium for these policies can be nearly three times that of a term plan. Premiums can be paid on a regular basis or for a set length of time, and both choices protect the insured for the rest of their lives.
iii) Unit-linked insurance plan (ULIPs) Your obligations change as you become older. Some of these include caring for aged parents, children’s education, and purchasing a home. With its dual benefit of investing and insurance, ULIP offers tailored solutions that can evolve to your requirements and objectives. Premiums are paid annually or monthly, with one portion going toward insurance and the balance being invested in stocks, bonds, or a combination of both.
While ULIPs can be a wonderful way to build wealth, their returns are market-linked, making them vulnerable to market risk. However, the flexibility they provide in terms of switching funds and the ability to withdraw a portion of your money can help mitigate this. The life cover is paid to the beneficiaries upon the insured’s death, or the policy pays out the maturity amount if the policyholder survives the policy period.
iv)Endowment plan Endowment provides insurance and savings in one bundle. It enables you to save regularly over a specified period of time while ensuring a minimum sum assured payable at maturity. Endowment is a fantastic strategy to save for future necessities like your children’s education or your retirement.
The maturity amount is paid if the insured lives to the end of the policy term. The beneficiaries will get the sum assured, plus a bonus, if applicable, in the tragic event of the insured’s early death. As a result, endowment is a risk-free investment that guarantees a specific level of return.
v) Retirement plan Do you believe you are too young to consider retirement? Consider the cost savings on your premiums and the significant growth in your corpus if you plan to retire at the age of 30. This will allow you a good 30-35 years to accumulate wealth, and the compounding effect will help you earn higher profits.
Retirement plans provide both investing and insurance benefits. Premiums can be paid systematically at regular periods, sometimes known as retirement funds. Retirement insurance is a type of whole life insurance that pays out on a regular basis after a set period of time. Immediate annuity plans are one-time premium plans that provide a steady stream of income during your retirement years.
5.To choose the best plan, ask the right questions:
The most typical mistake people make, particularly those on a limited budget, is to choose a plan or coverage based on their current salary. Keep in mind that your income will increase as you get older. An estimate of your future needs and aspirations, the number of present (parents, siblings) and potential (spouse, children) dependents, and predicted liabilities (medical care for elders, children’s education, home loan) should all be considered when picking your plan and coverage.
Here are a few questions you must ask yourself to make the right decision:
- What are your future goals:
- How many dependents do you have:
- What are your current or future liabilities:
- What health problems must be accounted for:
As you can see, insurance companies recommend acquiring a policy as soon as possible for valid reason. There is enough study and evidence to support the advantages of purchasing at a young age. This is not a marketing strategy or a marketing gimmick, and it is in your best interests. It may appear to be an increased expense, but wouldn’t you like to be safe rather than sorry?
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