Difference Between Buying Term Insurance Today vs. 5 Years Later

16-June-2021 |

Age is just a number! Well, your term plan insurance premium doesn’t necessarily agree.

 

Each year when you blow the candles out on your birthday, you are only getting younger. Younger in spirit, even younger by the soul! After all, we all believe that “Age is just a number.” We are only as old as we think we are.

 

But, unfortunately, your life insurance premiums have not picked up this trend! It seems that age is “not just” a number for them, especially when it comes to term insurance plans.

 

To understand why, let’s see what a term insurance plan is!

 

Term insurance plans are known to be the cheapest life insurance plans. The benefits are paid only in the event of the policyholder’s death. It is a pure risk cover, which means the sum assured is payable only if the policyholder dies within the policy term.

 

Example: If a person buys a policy of ₹ 5,00,000 for 20 years, his/her family is entitled to the amount only if he/she dies within those 20 years. If there is no death, the insurance company will keep the entire premium paid over the 20 years.

 

Thus, it is clear that a term insurance plan should not be construed as a savings or investment instrument. One cannot expect to make any returns on the amount contributed.

 

It is often said that the earlier you take a term insurance plan, the better it is! This is because age is an important aspect in determining the premium amount under such plans.

 

Why is that so?

 

The underwriting process determines the life insurance premium a policyholder will need to pay. In the underwriting process, various parameters are considered, such as your age, gender, occupation, lifestyle, policy tenure, diseases in the family, etc.

 

Along with this, an insurance premium is calculated by actuarial methods (a mathematical and statistical method to assess risk in insurance), which considers the probability of death occurring at particular age levels. The higher the age, the higher the probability of death assigned to it. This is because health risk factors become higher as we age.

 

And, the higher the probability of death, the higher the premium! This seems pretty intuitive when we consider the insurance company’s point of view. When the probability of death is high, it is more likely that the insurance company will have to pay the sum assured to you. Thus, to compensate for this risk, the insurance company will charge a higher premium from you at the age of 50 compared to when you are in your 20s.

 

You would ask, how much extra premium cost would you have to pay with age?

 

Here’s what we found:

 

According to a report by PolicyX.com, premium prices rise considerably as we age. It said, “Delaying a term plan purchase by 10 years costs on average 45% higher for a 25-year-old and 70% higher for a 35-year-old. People aged 55 are paying the highest amount, which is four times more than what a 25-year-old pays.”

 

https://www.financialexpress.com/money/insurance/term-plan-10-year-delay-in-buying-costs-a-35-year-old-70-more-indias-first-insurance-price-index/2174067/)

 

Therefore, it may be beneficial to buy a term plan early and lock in the lower premiums.

 

This brings us to a frequently asked question: What is the right time to purchase a term insurance plan?

 

Firstly, considering the importance of a term insurance plan, it can never be too early or too late to purchase one! Understanding the benefits of a term insurance plan may make it simpler to answer this question:

 

  • Lower Premiums:

 

The premiums for a term insurance plan are much lower than other life insurance policies like endowment plans. Term plans also come with a larger cover at affordable rates than endowment plans.

 

  • Tax* Benefits:

 

When you purchase a term plan, you get tax benefits applicable under Section 80C and Section 10(10D). Thus, it will help you to save a certain amount of tax. Although the premium amounts would be lower, you can invest your income in other high-yielding tax-saving instruments like a provident fund.

 

You can consult your tax advisors for more information on taxation benefits.

 

  • Termination:

 

Opting out of a term plan is a fairly simple process. In term policies, if you stop paying the premium, the risk cover ceases, and the policy ends.

 

  • Financial Security:

 

Buying a term plan is essential if you are the sole provider of your family. It is all the more crucial if you have taken a large loan, such as a housing loan, car loan, or you may have any other financial obligations. In the case of an untimely death, term plans help cover the risk of repaying the loans.

 

Tata AIA Life Insurance’s Sampoorna Raksha Supreme Plan (UIN: 110N160V02) This plan provides:

 

  • The dual benefit of whole life protection up to 100 years of age and a Life Stage Benefit option without fresh medical underwriting (the process of evaluating the insurance company’s risk while insuring your home, car, health or life)

  • Choice of four death benefit options: Life option, Life Plus option, Life Income and Credit Protect.

  • An Inbuilt Payout Accelerator Benefit that gives 50% of the basic sum assured upon diagnosis of the policyholder’s terminal illness

  • The option to add multiple riders1 to further enhance coverage

  • Flexibility to receive death bene­fit payout as a Lump sum or Income (up to 60 months) or both

 

Lower premium rates for female policyholders

 

Conclusion

 

The right age to buy term insurance is when there is a dependency on your income. If you have a dependent, whether it is at the age of 25 or 30, buying a term plan is of the utmost importance. Starting early gives you the benefit of cheaper premiums. However, to be able to pay premiums regularly, one must have an adequate, regular source of income. Thus, the ability to allocate funds regularly to premium payments is an important factor to consider.

 

Tata AIA Life Insurance offers multiple term insurance plans. You can check out Tata AIA Life Insurance’s term insurance plans to avail of various benefits, such as a wide range of riders1, flexible premium payment modes and frequencies, and tax* benefits as per the prevailing norms.

 

Get in touch with us today for more details

 

L&C/Advt/2021/Jun/0936

 

 

Need help to choose the right plan?

+91

By submitting your details, you are giving your consent to receive SMS/Call by Tata AIA Life Insurance Company Limited or its representative, with reference to this solicited inquiry even though you may be registered on the DND list. L&C/Advt/2019/Jan/075

Disclaimer
 
  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.

  • 1Riders are not mandatory and are available for a nominal extra cost. For more details on the benefits, premiums and exclusions under the riders please refer to the Rider Brochure or contact our Insurance Advisor or visit our nearest branch office

  • Insurance cover is available under the product.

  • The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan and it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. This blog is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life Insurance shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.