A life insurance policy is considered one of the essential components of any portfolio right now, especially after the severe impact of the pandemic worldwide. While it is pretty clear why you require life insurance (financial security for your family members in your absence), many people ponder the right age to start investing in the same. Here are some aspects that may prompt you to give it a thought.
What is the right age to start investing in life insurance?
There is no hard and fast age to begin investing in your life insurance policy. However, one adage always holds true in this space: The earlier you start, the better for you. This holds in several ways since beginning at a young age means that the insurer has lower risks, and you obtain higher coverage for lower premiums.
At the same time, with age and increasing risks as you grow older, choosing a life insurance plan in your 40s or 50s will not only be costly but may also come with reduced coverage. Most importantly, you should aim at securing your family members’ financial future early on in your professional life since the world is uncertain and mishaps do not come with prior warnings.
Hence, considering these perspectives, you should ideally invest in life insurance in your 20s or early 30s at the most, when you have already started earning and are getting settled in life. You can use a life insurance calculator to work out the coverage you will require and the approximate premium that would be payable.
A guide to the various types of plans available
Once you decide to invest in a life insurance policy, you must choose a suitable type of life insurance. Here is a guide to the various kinds of plans available in the market. Some of them include:
- Term Insurance Plans – Term insurance offers life coverage for the policyholder throughout a specific duration. A sum assured/death benefit is paid out to their nominees in case of their death within the policy period. These are comparatively affordable life insurance plans, and some even come with the return of premium features. In this system, the premiums paid are returned after the policy tenure (in case the life assured survives the policy tenure) after deducting GST and other applicable charges.
- Whole Life Policies – This is a life insurance policy with coverage for an entire lifetime, usually till 99 or 100 years. If the policyholder passes away in the policy period, then the sum assured is disbursed to their nominee. If they survive the tenure, the bonuses and sum assured are paid accordingly. Premiums for these plans are higher since they offer whole-life coverage.
- ULIPs – These are life insurance policies with a difference. They offer a mix of insurance and investments. You can get life coverage throughout the policy term. The sum assured is paid out to your nominees in case of your untimely demise within the policy tenure. However, the money you pay as your premium is also invested in market instruments for earning returns. They come with 5-year lock-in periods and tax benefits alike.
- Traditional Endowment Plans – These plans are specific life insurance policies that ensure life coverage and opportunities to build up your savings. Participating plans have a sum assured and a bonus paid out to nominees as death benefits in case of the life assured’s demise within the policy tenure. Endowment plans have bonuses periodically accumulated for policyholders and paid out as maturity benefits or as part of the death benefits.
- Child Insurance – These savings plans help parents build future corpus for their children’s education or other necessities. The death benefit is paid to the beneficiary child if the policyholder, in this case, the parent, dies within the policy tenure. Additionally, some plans often waive premiums in such a case and pay out the whole amount at maturity. Some plans have lump sum payouts or annual installments after the policy’s maturity.
- Pension Plans – Pension plans ensure life coverage while helping policyholders accumulate funds for retirement. There are also lump sum payouts at retirement or fixed monthly income plans. There are also annual payout options after turning 60.
Which one should you choose?
You should take your time while choosing a suitable life insurance policy that meets your needs. You should keep these parameters in mind while making your choice:
- Your Life Goals – Do you want simple financial protection for your family? Do you want to invest for retirement or future goals and get life coverage? Are you interested in securing your child’s future? Do you want a mix of insurance and investments? Choose your goals and act accordingly.
- Policy Tenure – Do you wish to have coverage for a lifetime? Or are you more inclined towards 20 or 30-year tenures? Those in their late 40s may find 20-year periods sufficient, while 30 years and more period may be suitable for those starting in their 20s. This can also vary as per the reasons for which the policy is bought. A child plan may have an ideal tenure that ends when the child goes to college, while a pension plan would ideally last till the age of retirement so that the pension payout starts on cue.
- Coverage Amount – You should choose your plan after ensuring adequate life coverage per your needs. You can use a life insurance calculator to work out the same.
To sum it all up, life insurance is indispensable in today’s day and age. Make sure that you start investing in the same as early as possible.