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What is the Best Time to Buy Term Insurance?
When it comes to financial planning, term insurance plays a critical role in providing financial security to your loved ones. However, people often ask, "When is the best time to buy term insurance?"
A term plan is the go-to life insurance product, and it adds substantial stability to your overall financial portfolio. These policies suit all age groups because of their affordability and simple eligibility criteria. However, based on the applicant’s entry age, we can generally agree on the best time to buy life insurance.
Table of Contents
When is the Best Time to Buy Term Life Insurance?
Most Indians purchase term policies in a rush during the last three months of a financial year. In March, insurers' agents and online portals faced the most traffic as people wanted to avail themselves of associated tax benefits.
It is wise to avoid these last three months as a hurried buying decision will attract greater chances of committing mistakes. People must give adequate time to market research and stick to plans that offer effective riders.
Also, between January and March, the agents remain busy handling more consumers. Consequently, they cannot dedicate enough time to explaining the particulars of a plan to a potential consumer. Therefore, April is the best time to buy a term plan when almost all the insurance companies have left behind more than half of their annual workload.
When is the Ideal Age to Buy Term Insurance?
In Your 20s: The Best Time to Start
Buying term insurance in your 20s is often the best decision for several reasons:
Lower Premiums: Premiums are calculated based on your age and health. When you are young and generally in good health, insurance companies view you as a low-risk applicant, resulting in lower premiums.
Future-Proofing: Investing early in term insurance ensures your family's financial security for longer.
Tax Benefits: If you have just started earning, the tax benefits on term insurance premiums under Section 80C of the Income Tax Act can be a significant advantage.
In Your 30s: Still a Good Time
By the time you reach your 30s, your financial responsibilities typically increase. You may have a spouse, children, a home loan, or other liabilities. Buying term insurance at this stage is crucial to protect your dependents.
Affordable Premiums: While premiums are slightly higher than in your 20s, they are still affordable.
Adequate Coverage: At this stage, you can opt for a higher sum assured to cover your growing financial obligations.
In Your 40s: It's Never Too Late
In your 40s, your responsibilities may peak with significant financial commitments like children's education and mortgage payments.
Higher Premiums: While premiums increase as you age, the peace of mind term insurance makes it a worthwhile investment.
Health Considerations: If you are in good health, you can still secure a reasonably priced term plan. However, any pre-existing conditions may lead to higher premiums or exclusions.
In Your 50s and Beyond: Limited Options
While buying term insurance in your 50s or 60s is still possible, options become limited, and premiums are significantly higher.
Shorter Policy Tenures: Insurers often offer shorter coverage periods to older applicants.
Higher Risks: Age-related health issues could lead to declined applications or restrictive policies.
Life Milestones that Signal It's Time to Buy Term Insurance
While age is a crucial factor, certain life events should trigger your decision to purchase term insurance:
Senior Citizens and People About to Retire
While buying term insurance late in life isn't ideal, it's crucial for those without a life insurance budget to get one when their child starts earning. This step ensures post-retirement financial stability and adds a protection layer for your spouse in case of unfortunate events.
Married Couples Planning for Children
Many consider this phase of life the best time to buy life insurance as individuals are at their peak income potential. Moreover, getting a term plan with life coverage close to 10 times the annual income ensures the child and spouse experience no financial distress, even if they need to confront a medical emergency.
Working Professionals
Financial advisors suggest these individuals purchase life insurance early as they start contributing to their family's income. At the beginning of their career, the average salary is also low; thus, it is considered the appropriate age to plan for future financial security. On top of everything, you get to reduce taxable income.
Taking on a Mortgage or Large Debt
When you take on significant debt, particularly a home loan, term insurance becomes crucial as it prevents your family from inheriting your debt burden to ensure your loved ones can maintain their current lifestyle.
Starting a Business
Entrepreneurs should consider term insurance to protect their families from business-related debts. It provides working capital for business continuity and ensures business partners have funds to buy out their share.
Factors to Consider When Deciding the Right Time to Buy Term Insurance?
Financial Responsibilities
Evaluate your financial responsibilities and dependents. Buying term insurance becomes essential regardless of your age if you have a spouse, children or ageing parents relying on your income.Life Events
Significant life events often dictate when you should buy term insurance. Examples include
- Getting married
- Becoming a parent
- Taking a home or car loan
- Starting a business
Each milestone increases your financial obligations, making term insurance a must-have.
Health Condition
Your health plays a significant role in determining the cost of term insurance. Insurance companies typically require a medical examination before issuing a policy. Any pre-existing health conditions can lead to higher premiums or exclusions.Policy Tenure
Your age at the time of purchase also affects the policy tenure. If you buy a policy at 25, you can easily opt for a 40-year term, ensuring coverage until you are 65. However, if you buy at 40, your coverage period may be limited to 20-25 years.Financial Goals
Consider your long-term financial goals, such as children's repayment. The earlier you start, the easier it is to align your term insurance policy with these goals.Common Mistakes to Avoid When Timing Your Purchase
Understanding when not to buy is just as important as knowing when to buy:
Waiting for the Perfect Time
There is rarely a perfect time to buy insurance. Waiting too long can result in higher premiums, decreased insurability, missed opportunities for long-term savings, and the risk of being uninsured when needed most.
Delaying Due to Current Health Issues
Some people wait to buy insurance until their health improves. This is risky because health conditions might worsen, new health issues could develop, premiums will increase with age, and you might become uninsurable.
Postponing Because You Are Single
Being single doesn't mean you don't need insurance. Consider future insurability protection, ageing debts, final expenses and the benefit of locking in low rates.
Why is Term Insurance an Important Part of Your Life?
These are several common reasons that necessitate owning a term plan:
- Family members become the beneficiary of death benefits if the policyholder meets an unfortunate demise within the policy term. This guaranteed money secures the future of your loved ones and ensures all liabilities are paid off.
- Some term plans offer maturity benefits to the policy buyers provided they have paid timely premiums.
- Add-on facilities provide extra protection to the policyholder's family when coupled with term plans. For example, if you add an accidental death benefit rider, critical illness rider, or disability cover rider, the insurer will pay the dependents according to the laid-out conditions.
If you have chosen accidental benefits apart from basic life insurance coverage, your family gets the insured sum in case of your unfortunate demise in an accident.
- Section 80C of the Income Tax Act (1961) permits tax exemption on income up to ₹ 1.5 Lakhs if it is utilised as a premium payment for a term plan. Moreover, the total sum assured to the beneficiaries in death benefits is entirely tax-free as per section 10(D) of the Income Tax Act.
- Some insurance companies offer rider options where the validity of the term plan stays intact even if you miss some premium payments owing to loss of work.
FAQs about the Best Time to Buy Term Insurance
Can I hold multiple term insurance plans?
What is the maximum age limit of term insurance?
When should you add accidental coverage to your basic life coverage?
Am I too young to buy term insurance at 25?
Should I wait until I get married to buy term insurance?
Is it too late to buy term insurance at 45 years?
Will my premiums increase if I wait another year to buy?
I have some health issues, should I wait until they improve to buy term insurance?
How does my current age affect the maximum policy term available?
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Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
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