Rule: You should buy life insurance when you are young because it is cheaper.
Exception: Don’t buy a long-term policy if you are very young. Most companies offer cover for a maximum of 30 years. If you take a 30-year policy in your early twenties, the insurance will end in your early fifties.
30 yrs is the maximum period for which most companies offer term insurance plans to individuals. The minimum insurance term is usually 10 years.
65 yrs is the maximum age till which most insurance companies offer life cover under term plans. The minimum age required to take a term plan is 18 years.
Instead of taking a long-term insurance plan early in life, it is better to take a short plan of around 10 years initially and buy a 30-year term plan before you turn 35. This will ensure that you don’t have to take a fresh cover when you are 55 years old. At that age, the premium is very high.
Here are the calculations of two strategies for a cover of Rs 10 lakh. The second option is more cost-effective.
Strategy I
A. Age: 25 Term: 30 yrs
Annual premium: Rs 2,563
Rs 2,563 x 30 yrs = Rs 76,890
B. Age: 55 Term: 10 yrs
Annual premium: Rs 11,209
Rs 11,209 x 10 yrs = Rs 1,12,090
Total cost (A + B): Rs 1,88,980
Strategy II
A. Age: 25 Term: 10 yrs
Annual premium: Rs 2,342
Rs 2,343 x 10 yrs = Rs 23,430
B. Age: 35 Term: 30 yrs
Annual premium: Rs 4,268
Rs 4,268 x 30 yrs = Rs 1,28,040
Total cost (A + B): Rs 1,51,470
As a person grows older, his health deteriorates. If by the age of 55, the individual has developed a medical condition, the insurance premium will be much higher than what has been assumed here. Worse, the insurance firm may refuse to insure him if he hasn’t been keeping good health.
