Term insurance is primarily used to protect your family’s future financial requirements in case of your unexpected demise during the policy term. It is something you must take based on your family’s living expenses and liabilities. As you age, your liabilities and your family’s dependency on you are likely to reduce. Hence, the requirement for term insurance may diminish as you age. This is why term insurance is best when taken at a young age. Through this way, you can protect your family from various financial hassles.
Consider this scenario, for instance. Rajan bought a term insurance cover for Rs.1 crore (policy term 30 years) when he was just 25 years old. Currently, he is 35 years of age. He is married and has two kids. The yearly living expenses of his family comes around to Rs.4 lakh. He also has to save money for his kids’ higher education and marriage. He has no other liabilities. In this case, based on his requirement, a corpus of Rs.1 crore is adequate for his needs. If something were to happen to him, his family can use the money to secure their financial future.
Now, consider an alternate scenario. Madhan is 54 years of age. He has two children. He has total PPF investments worth Rs.55 lakh, mutual fund investments worth Rs.50 lakh, and two homes worth Rs.2 crore. Following his retirement, he might earn an employee provident fund of Rs.30 lakh. His son has already completed his post-graduation, and he has just started working in a private concern. His daughter is still in college.
In this scenario, Madhan has taken care of most of his family’s responsibilities already. His assets are sufficient for his family’s future, and he has no major liabilities. If he wants to enter a term insurance cover for Rs.1 crore at this age, it might cost him more than Rs.50,000 per year. Considering the fact that his family’s dependence on his earnings is minimal at the moment, taking a term insurance plan at this age may not be such a good idea. He can invest the money in other maturity plans and earn a decent corpus following his retirement.