Is Buying Your ₹1 Crore Term Insurance Early the Right Choice?

People plan their finances, keeping their future goals in mind. Considering this, they often delay the necessary actions. Especially when it comes to buying term life insurance, they do not consider its immediate effect. A common question among young professionals is, "When is the appropriate time to buy term insurance?" Is it more suitable to buy it fresh out of college, or should you wait until you get married or have children?

Here you can explore factors you should consider when deciding when to purchase. By understanding how age, financial dependents, and liabilities interplay, you can make an informed decision about the best time to buy ₹1 Crore term insurance and provide for your loved ones' financial protection.

Understanding Term Insurance

Before deciding on timing, it’s important to understand what term insurance is. At its core, a term plan is a simple yet powerful product: it provides financial protection to your dependents if you(in case you are the life assured) pass away during the policy term.

Here's how it works: you pay a premium for a specified period. If the life assured dies within this term, the nominee receives the sum assured as a death benefit. Pure term insurance generally does not offer maturity benefits, as it is designed solely for protection. This focus on risk coverage keeps premiums lower than those of other life insurance products.

Why Timing Your Purchase Matters?

When you apply for a term insurance plan, your age and health at the time of entry determine your premium for the entire duration of the policy.

1. Locking in Lower Premiums

Life insurance premiums are calculated based on mortality risk, which increases with age. By purchasing a ₹1 Crore term cover in your 20s or early 30s, you "lock in" a lower rate. This premium remains fixed, meaning you pay the same amount even as you get older and your health risks change.

2. Easier Medical Underwriting

Younger applicants typically have fewer pre-existing health conditions. This often leads to faster policy issuance and a higher likelihood of approval, without "loadings" (extra charges) on the premium due to health issues such as hypertension or high blood sugar.

3. Handling Liabilities and Dependents

Whether it is an education loan, a car loan, or a home loan, these liabilities may fall on your family in your absence. A comprehensive term plan helps ensure your debts are cleared without eating into your family's savings.

Determining the Appropriate Coverage Amount

Once you decide to buy, the next question is “How much coverage do I need?” A ₹1 crore term plan is a reasonable baseline for most urban households.

• Rule of Thumb: A common financial planning rule of thumb is to opt for a life cover that is at least 10 to 15 times your annual income. For example, if you earn ₹10 lakh annually, a cover between ₹1 crore and ₹1.5 crore may be advisable. This aims to help your family replace your income for a significant period.
• Human Life Value (HLV): For a more precise calculation, you can use the Human Life Value (HLV) method. This calculates the present value of your future income earnings, minus your personal expenses, to determine the economic loss your family may suffer in your absence.
• Consider Future Needs: Always account for inflation. The cost of a college education today may be significantly higher 15 years from now. Ensure your sum assured has a buffer to help manage these rising costs.

Different Life Stages and Term Insurance

The appropriate time often coincides with specific life milestones. Here is how term insurance fits into different stages:

• Early Career (20s): Buying early offers the advantage of competitive premiums. Even if you have limited financial dependents now, your parents might rely on you eventually. Securing a policy now may allow you to lock in a rate while you are healthy. It serves as an early foundation for a financial protection plan.
• Marriage and Family (Late 20s – 30s): This is a critical stage. With a spouse and perhaps young children, your financial responsibilities often increase. At this stage, term insurance is a significant consideration to protect the financial future of your growing family.
• Mid-Career (40s): By now, your income may have grown, but so have your lifestyle expenses and liabilities. Term insurance remains vital here to help cover these ongoing liabilities. You may need to review your existing coverage to ensure it aligns with your current standard of living.
• Pre-Retirement (50s): While you are closer to your financial goals, you may still have dependents or debts. Term insurance at this stage serves as a backup plan to help your spouse maintain their independence and lifestyle during retirement.

Conclusion

There is no single perfect day to buy term insurance, but the general principle is: the earlier, the better. Delaying purchase may lead to higher premiums and health-related coverage challenges.

By assessing your age, dependents, liabilities, and financial goals, you can determine the optimal time to secure a ₹1 crore term insurance plan. Insurers like Bajaj Life Insurance offer flexible options that cater to various life stages, ensuring your family's future remains financially protected. Taking this step today can provide peace of mind and a strong foundation for your loved ones’ security.

 Moneycontrol Journalists are not involved in creation of this article.