30 NOV 2016
Life insurance for youngsters
Most youngsters think they are too young to buy insurance. Insurance in your 20s may seem uncool. You may feel that you are young and single, you don't have any responsibility or any dependents except your own. So, youngsters actually want to spend a lot on fulfilling materialistic aspirations and indulge in activities that provide instant gratification. The latest gadget may be more appealing than a savings plan. Most youngsters would be just starting their career with their first jobs, insurance may not be considered or even if it is considered it will only be looked as a tax saving tool. Uncertainties like death or illness seem to be a remote possibility thus keeping insurance as the last thing in your mind. This article will give you a different and fresh perspective.
At first, what you say may be right. Insurance plans like a term plan is bought for your family's security. So, if you are an earning member of the family and an unfortunate occurs to you, the insurance company will pay a fixed sum of money to your family members which will help them with their financial matters. Since you are single, you don't have to worry about your family's future. Chances are also high that if you live with your parents, it is they who run the show at home. Hence, the argument that you don't need to secure anybody's future at this juncture may sound apparently correct.
However, if you start planning for an insurance plan early, there are various benefits for you to reap. The biggest advantage is that you save a lot on costs. Let’s look at the benefits below:
- If you buy a term insurance plan, when you are young, the premiums will be cheaper. Insurance premiums increase with age. You may postpone your decision to buy insurance. But this procrastination comes with a 'cost of postponement.’ For example, if you are a healthy 25 year old non-smoker male, your premium rate will be 5693* for a sum assured of Rs 1 crore and policy term of 25 years. Whereas the same plan, policy term and sum assured at the age of 30, the premium rate will be 7130*. Life Insurance is directly linked to the age of the policyholder. Also, it is easier to get a policy issued when you are young and healthy. So by buying an insurance policy earlier you are not only saving for the rainy day in the future but also saving on costs.
- When you are in your 20's, you are young and healthy and chances are that you've not yet been diagnosed with any lifestyle disease like Diabetes or kidney problems etc. This will ensure that you can easily get a health insurance or a critical illness plan.
- As you advance in life, your income will generally grow which will make it important for you to stay invested in insurance policies to reduce the burden of taxation. It will help you plan your taxes and finances well in advance.
- With early investments in wealth-building plans, the chances of you reaping the benefits of compounding are very high. Compounding is the principle wherein your money multiplies more than the aggregate of principal and interest because of the interest earned on the added interest. For instance, A is a 25-year-old male who invests Rs 10000/- today at 10% p.a to meet his goal when he is 35 and B is a 30-year-old male who invests the same amount at the same rate to meet his goal when he is 35, in this case, both won't receive the same amount of money at the end of the term. This is due to the compounding principle.
It serves you better if you get insured early. The earlier you sow, the longer you reap.
As youngsters, you may be confused on what kind of life insurance should you opt for?
The popular and most clichéd notion about life insurance as a financial product is that of a provider of death benefits which is when the policyholder is no more then a death claim is paid to the nominee. It is true that life- cover is one of the most important aspects of life insurance. But most people are ignorant of the fact that life insurance also provides maturity benefits when the person is alive.
Let’s now understand how different life insurance plans can meet different needs at different life stages.
Term 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 must be considered as very important. An online term plan is generally cheaper. Term plans can also be chosen as per your requirement that is whether you want your nominee to receive a lump sum amount or whether you want him/her to receive a monthly income for a set period of time after your death, you can also opt for a combination of both. The monthly income can help your nominee manage finances well and the lump sum can help them pay off the debts.
If you are not the sole bread-winner of the family at this stage in your life, you can still opt for a term plan because right now you may not have dependents but in future you may plan to get married and have a family. If you buy a term plan now the premium rates will be cheaper than if you buy it after 5 or 10 years. This way you’ll not only plan your finances early, you’ll also save on costs and taxes. For those youngsters who have an education loan should also consider buying a term plan because God Forbid if you come across an unfortunate event, your parents will not only go through an emotional trauma but they will also have to face the financial distress.
Savings and Investment plans: You may plan to settle down a few years down the line where you may plan for your first car, your first home, international holidays etc. In these scenarios, you should opt for insurance plans that provide maturity benefits like Savings plan or ULIP. ULIPs are great long-term investment options. They help you build a large corpus as your wealth compounds every year. For your long term goals, like buying a house 5 years or 10 years later, you can opt for investing in ULIPS to get good returns. ULIPs provide the flexibility to switch over funds and they also provide tax benefits. As per your risk appetite, you can invest in equity, debts or a combination of both. Since you have just started your journey towards financial planning it is advisable that you invest in star rated funds.
You can start with an online term policy and slowly move towards plans that provide investment and savings option that will fulfill your needs at various life stages.
Planning your finances early will make you wiser than most of your friends! So, do you still think insurance is uncool?
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