Do you need a term insurance policy where the tenure extends to the age of 70 or 75 years, well past your retirement age? In an ideal scenario, by 50 a financially-savvy individual would have either achieved financial independence or be well on track to achieving key financial goals.
But this is not always the case. Some may have taken home loans to repay over, say, the following 10 years. There could be those who wish to ensure old-age financial security for their spouses in the form of the term insurance lump-sum claim. “The basic principle is to check how old your kids are and how many years would your spouse or children need financial support for. Decide the policy term basis the duration for which you want to ensure financial support for your family,” says Rhishabh Garg, Head, Life Insurance, Policybazaar.com.
For those who do not have liabilities or other yet-to-be-fulfilled responsibilities, however, a term insurance cover with a tenure extending into their 60s or 70s is simply not needed though life insurance companies do offer long-term term policies, say financial advisers. “The purpose of a pure protection term policy is to cover the individual’s earning capacity – this is the only effective tool to cover loss of income due to death. You could argue that many would continue to be active even after their retirement, as consultants for instance, well into their 60s. Even in such cases, life insurance cover is needed at best up to the age of 65 years,” says Harshad Chetanwala, co-founder, MyWealthGrowth.
Term insurance may also not be an ideal vehicle to leave behind a legacy. “Those who buy term insurance at a later age or for the long-term will pay premiums at higher rates. Instead, they should plan well to create a legacy through investments,” he adds.
The cost of delaying term insurance purchase
It is best to buy term insurance when you are young and ensure that you have enough coverage until the age of retirement. Life insurance premiums are linked to age as also health conditions, which is why they go up steeply in line with age.
As people grow older, the chances of contracting illnesses and hence, death, increase. According to Policybazaar data, if a 45-year-old, non-smoker male puts off buying a Rs 2-crore term policy (ICICI Prudential Life’s iProtect Smart) by five years, his premium could increase by close to 40 percent.
Premium loading, the additional charge which is calculated as a percentage of the base premium, also comes into play, as you are more likely to be diagnosed with chronic conditions such as diabetes and hypertension as you grow older. Since such lives are seen as riskier to cover, life insurance companies charge additional premiums as per their underwriting policies.
While people accept higher premiums, the policy issuance rate tends to be low. For instance, those who may have undergone angioplasty will find fewer takers.
Also read: How to avoid falling prey to mis-selling traps
Why buy early
Buying term insurance early in life — as soon as you have dependents — ensures that you can obtain a policy easily because you are less likely to have contracted chronic conditions or other ailments. Also, life insurance premiums do not rise, unlike in the case of health insurance, once you buy the policy. So the premium applicable for the age at which you buy the policy gets locked in for life.
Older individuals without a term cover should first assess the investment corpus that they may have built up over the years. If the kitty cannot take care of their financial liabilities, they must look for term insurance cover. These obligations could be a housing loan that is yet to be paid off or a shortfall in funds for children’s education that might arise in your absence. Put simply, if you have financial dependents, a pure protection term cover at any age is simply indispensable.
“This may mean higher premiums as insurers will impose loading due to existing ailments, offer lower sum assured or reject your proposal outright but you must make an attempt. Higher premiums constitute the price that you have to pay for making the mistake of not buying a term cover in your younger years,” says Preeti Zende, founder of ApnaDhan Financial Services.
Also read: Why term insurance premium rates are cheaper for higher sums assured
If you are healthy, you can hope for a reasonably-priced term insurance cover. “So, if you are yet to fully provide for your dependents’ needs and goals in your absence, you must buy term insurance. You must arrive at the ideal amount by taking into account your current assets — financial and physical — liabilities and future responsibilities,” says Zende. Ensure that you do not fall for sales pitches enticing you to buy endowment or unit-linked insurance policies instead. Stick to term insurance for large cover at affordable premiums.
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