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"How much insurance do I need?" is a common question among those looking to invest in a term policy. Many underestimate the role of age in determining the right insurance amount for themselves and their loved ones. Before you buy term insurance, it helps to know how insurance needs vary by age.
A term insurance plan allows you to secure your family's future and protect them from financial hardships. If the breadwinner meets an untimely death or suffers from a critical illness that affects their earning ability, it can cause financial distress to survivors.
The amount of term insurance you need depends on how much money your dependents will need at each life stage. And these requirements keep evolving with age. For example, a 40-year-old will have more dependents with multiple needs than a 20-year-old. Given below is an explanation of life insurance needs by age.
Broadly, people buying term insurance fall into five age groups. They can be categorized as people in their 20s, 30s, 40s, 50s, and beyond 60s. We look at the insurance needs of each of these age groups.
Due to inactive lifestyles, those in their 20s increasingly face a higher risk of critical illnesses or sudden death. And as shown by COVID-19, no age group can claim to be less vulnerable to death than others.
Usually, people don't have many financial commitments in their 20s other than things like paying off education loans taken by parents. Fewer financial responsibilities increase their disposable income, giving them ample time to start planning for retirement. Term insurance with a return of premium feature allows them to cover their current financial commitments adequately. It also allows them to leave a good corpus for their survivors and create a corpus for retirement. They can also get tax* benefits by investing in term insurance.
Insurance companies charge a premium based on various factors, including the age of the applicant. Applicants in their 20s have lower health risks, allowing them to buy term insurance at lower premiums.
Typically, this group comprises newly married people with young kids. At this age, people start prioritizing their family's needs over their own. Financial commitments at this age may include mortgage payments, auto loans, credit card bills, and many other expenses. However, the financial obligations are still lower than those seen in the later stages. Your financial commitments will drive insurance requirements and determine the cover you would like to provide for your family. Also, fewer obligations mean you can set aside more funds for retirement, which will become challenging later. Term insurance with a return of premium can help you save funds for the future and get a lump sum at a later stage. Premiums paid towards term insurance are eligible for tax* benefits, giving multiple benefits of life insurance, tax* savings, and retirement planning.
Most people start feeling the need to get insured at this stage. People in their 40s have many responsibilities, such as mortgages, household expenses of dependents, children's education, parents' medical costs, etc. The focus is on paying off debts and becoming free of liabilities. The 40s is also when people start worrying about their retirement and feel the need to build a corpus for their future needs. Insurance needs are high at this stage as policyholders need adequate cover for the current and future expenses of their loved ones. Usually, people are healthy in their 40s, which can help keep premiums lower than the premiums payable during the later stages of life.
In their 50s, those with older kids may get some financial support as their children start earning. However, those with younger kids still have many commitments, such as education, living expenses, etc. Also, many in their 50s still have unpaid mortgages and other debts. At this stage, you want to make sure your family has adequate insurance cover to pay off the outstanding liabilities and meet their living expenses. Also, as you are approaching retirement, you want to make sure you have enough funds to cover your expenses after retirement. A combination of financial requirements for these two specific needs determines the life insurance required in the 50s.
Some insurance policies may have a life insurance age limit of 65 or 70 years. If you are in your 60s, you still have time to buy insurance. Those who have dependents can benefit from insurance at this stage. For example, if a wife is dependent on her husband's pension, she can benefit from insurance if her husband dies. Some people may also have certain financial liabilities in their 60s, and insurance can make sure they don't leave their survivors under a financial burden. Typically, premiums are high at this stage, as people in their 60s are more likely to get ill. People who take insurance at a younger age benefit from lower premiums.
While insurance needs vary by age, the tips shared above are broad, and there could be exceptions. For example, someone in their late 30s may have fewer financial obligations, thus reducing their term insurance needs. Someone in their 50s may still have several financial commitments, thus requiring higher insurance. Premiums payable are lower for younger applicants as they face fewer health risks. Also, a younger population gets adequate time to plan their retirement by taking insurance early.
However, it's never too late to take insurance. At Tata AIA Life Insurance, the maximum entry age for life insurance goes up to 100 for certain policies.
Tata AIA Life Insurance's term insurance plans are available for people of all age groups. Get in touch with Tata AIA Life Insurance's advisors to find the appropriate insurance plan for your age group.
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*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.
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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.
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