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SMC Insurance Brokers Pvt. Ltd.
Parsvnath Metro Mall, Near Pratap Nagar Metro Station, Pratap Nagar, New Delhi-110007
Registration No: 289, Registration Code No: IRDAI/DB-272/04/289, Valid till: 27/01/2026, License category: Direct Broker (Life & General), CIN: U66000DL1995PTC172311
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When Should You Buy Term Insurance?
by SMCIB on Tuesday, 25 October 2022
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“I’m just in my 20s…I definitely don’t need to buy term insurance right now…”
“Umm, I’m in my 40s…is it too late now for me to buy one?”
Your dilemmas are completely valid. To financially protect your loved ones in your absence, buying a Term plan is a necessity, yes. But when is the best time to invest in it? Let‘s find out, in this article!
When should you buy a Term Insurance policy?
Before deciding when you should buy a term insurance plan, you should look at the purpose again. The main objective of a term plan is to secure the financial future of the people who depend on your income for their living expenses.
So you should ask yourself if you have financial dependents or any possibility of financial dependents in the future. Or do you have any loans?
If your answer is yes, you need to invest in a term insurance plan as soon as you can. If your answer is no, there is no urgent need to invest in a plan.
Let’s take two examples and see when exactly you need a Term Plan, and when you don’t.
| Situation 1 | Situation 2 |
|---|---|
|
Virat is an IT professional and earns a good salary. His mother is a homemaker and his father is retired. Virat is the sole breadwinner of the family, and both his parents depend on his earnings for their short-term and long-term expenses. Therefore, he must purchase a term insurance policy as soon as possible - to keep his family financially secure. |
Rekha works as a legal associate in a law firm. Her father is a central government employee, who’d retire after 10 years with lifelong pensions. And her mother is a teacher who has her own adequate income and savings. At this moment, Rekha doesn’t have any financial dependents or major responsibilities. Therefore, she doesn’t need to purchase a term insurance policy right now. |
So, if you have financial dependents or any debts, you should not delay buying a term insurance plan - to keep your family’s financial future secure. Generally, the thumb rule is ‘Buy early, save more’. Let’s have a look at how that works.
How does buying early help you save more?
The insurer will decide your premium on the basis of the age at which you buy the policy. This premium remains the same throughout the policy tenure. The thumb rule is you should buy the policy as early as possible, so you can get a lower premium rate.
So if you plan to buy it early (like in your 20s), for the same coverage you’ll need to pay less - compared to someone who opts for it later in life (like in their 40s). Hence, you can take the cover for the long term, and continue to stay protected at a low cost.
Let’s understand this better - with the help of an example.
Sushil, 25-year-old, wants to buy a term plan worth Rs. 1 Crore up to the age of 65 years. The table below shows the premiums - adjusted for inflation - he would have to pay, depending on when he purchases the policy.
| Situation 1 | Situation 2 |
|---|---|
|
Virat is an IT professional and earns a good salary. His mother is a homemaker and his father is retired. Virat is the sole breadwinner of the family, and both his parents depend on his earnings for their short-term and long-term expenses. Therefore, he must purchase a term insurance policy as soon as possible - to keep his family financially secure. |
Rekha works as a legal associate in a law firm. Her father is a central government employee, who’d retire after 10 years with lifelong pensions. And her mother is a teacher who has her own adequate income and savings. At this moment, Rekha doesn’t have any financial dependents or major responsibilities. Therefore, she doesn’t need to purchase a term insurance policy right now. |
Inference - Not much difference can be seen in the aggregate premium paid during the term. However, when the 6% inflation is factored in and the NPV (Net Present Value) of the premiums is calculated, we can see the difference is huge, and buying a policy early could save Sushil a considerable amount of money over time.
A word of caution
Although it is advisable to buy a term policy at an early age, the purpose of buying the policy matters much more. Before you invest in a term plan, you will need to think about every short-term and long-term financial goal of your family. This will help you understand the coverage you need, and the customisation options you should pick. If you buy a policy too early, when you actually don’t need it, your decision might not be very helpful to you or your financial dependents.
Wrapping Up!
The best time to buy a Term Insurance policy is only when it’s right for you - when you have people to support, and loans to settle. So pause, breathe a little, and take enough time to think it through. We hope this article will help you figure out your priorities and make a good decision.
