Ask any expert about when one should ideally start their financial planning and they will likely answer with ‘as soon as possible’. Whether it is saving money or investing it in the right instruments, the sooner you start, the better it is. While people are quick to take this advice when it comes to investment, they seem to think that it does not apply to term insurance. People harbour the perception that a life insurance policy should be bought at a later stage in life, perhaps when one has already established themselves and started a family.
The fact is that there is no better time to purchase a term plan than in your 20s. This is usually the life stage where you are earning for the first time, and it is imperative that you use the hard-earned money to secure the future of your loved ones.
How does term insurance work?
If you are planning to buy a term plan for the first time and are unaware of its functioning, fret not. Term insurance is a type of contract in which the insurer agrees to pay a pre-decided amount, known as the sum assured, to the beneficiaries of the policy if the policyholder were to pass away during the tenure. In return for this assurance, the policyholder is expected to pay a premium on a regular basis. A term plan is a very affordable type of life insurance. It provides coverage for a limited term at reduced rates. The premiums reduce even more when one buys it at a young age.
Why term insurance should be bought in your 20s
- You pay lower premiums
When the insurer calculates the premium for a particular individual, one of the biggest factors they take into consideration is their age. An individual who is young, for instance, in their 20s or 30s would be comparatively healthier than, say, an individual who is in their late 40s or 50s. The likelihood of diseases increases with age. This leads to an increase in the premium amount as well. Hence, when you reduce the age variable in the term insurance calculator, the premium estimate, too, lowers considerably.
- You get coverage for a longer period
Another benefit of buying term insurance early is that, not only do you pay lower premiums, but you also get coverage for a longer period of time. This helps you have a life cover for most stages in your life until the period where you may not require a life insurance policy.
If your intention is to have a life cover until you are 75 years old, then buying life insurance at 25 years of age gives you coverage for 50 years. On the other hand, if you were to buy the plan at 45 years of age, you would receive coverage for 30 years only. Not to mention the fact that the premiums would be higher in the latte scenario.
- You get tax benefits
Being aware of tax benefits at a young age and making the most of them can help you save your income from getting eroded into taxes early on. A term plan is a useful tax-saving instrument. The premiums you pay for the policy can be used to claim tax deductions up to Rs 1.5 lakhs as per Section 80D of the ITA, 1961. Additionally, the death benefit pay-out given to the beneficiaries is tax-exempted as per Section 10 (10D) of the Act.
- You inculcate financial discipline
Financial discipline is something that most individuals tend not to think of when in their 20s. However, this is the age where it is most important. If one starts developing healthy financial habits at this age, the benefits of it can be enjoyed lifelong. Keeping aside a small portion of your salary and putting it away in a term plan at the end of the year during your 20s will give you a deeper peace of mind in your mid-30s. You will not have to pay high premiums to buy a new plan or worry about what may happen to your family if you were no longer present to take care of them.
Note that the premiums of term plans are dependent on several factors, amongst which age is one. The premium calculation may vary from insurer to insurer and from plan to plan. The estimate given by the term insurance calculator can help you get an approximate figure. However, for the final quote, one should reach out to their insurer before proceeding ahead.