Insurance is an integral part of financial planning in current times. It is important that you secure your assets as well as your life and health with suitable insurance plans. Insurance premiums are calculated based on various aspects; and age of the insured is one of them when it comes to health and life.
So if Ankit who is 25 years old and Vikram who is 40 years old buy a term life insurance policy each with a sum assured of Rs. 50,00,000 their insurance premiums will vary even if the rest of the factors like health conditions and lifestyle are same. This is explained in detail in the later part of this post.
Age impacts not only the premium amount but also impacts other aspects of the policy buying decision. The same will hold true when it comes to health insurance policies too. However; here we focus on how age impacts the decision making process when buying life insurance
Buying life insurance: Age plays an important part:
Age as we discussed above impacts the insurance premium, apart from that it also impacts the kind of insurance policy one buys, the overall insurance cover and the policy term. It is important to mention that insurance policies may be bought with different objectives in mind.
A Term insurance policy is bought with the primary objective of taking care of the dependents when the insured passes away. Thus the term of the policy will be determined by the age of the person who is buying the insurance. So for someone who is 20 years old the appropriate policy term would be 40 years while someone who is 35 years of age would like to go for a policy term of 25 years. This is with the assumption that one is likely to work till the age of 60 and by the time they reach that age the dependent children would have grown up and become independent too! This means the family members are less likely to be dependent on the running income of the insured.
Unit Linked Insurance Plans combine insurance with investment. The investor has the flexibility to choose from various funds offered by the insurance company, the funds will be invested as per the choice of the buyer. The policy buyer can also decide whether they want to focus more on debt or equity. People in the lower age bracket will be more willing to take risk and hence will choose the funds as per the risk appetite while those in the higher bracket might want to focus more on debt and lower risk funds. For someone in the 20s or 30s the focus would be capital appreciation while for someone in 40s and 50s the focus will be more on stability.
There is another category of life insurance plans called the Annuity or the Pension plans. In these plans the policy buyer makes an investment in the annuity plan in the form of premium and he/she gets it as regular payouts at a future date which would likely be after the retirement of the buyer. The buyer could choose to pay onetime premium or make regular contributions. The premiums will be based on how much the insured wants as payout after retirement and of course the age at which the plan is bought. If you buy at the age of 20 and you need funds after your turn 60 then you have more time to reach your goal. So you can afford to make a smaller contribution in form of premium. However if you start at the age of 45 then you just have 15 years to reach your goal. This means that that your contribution towards premium will have to be higher.
Generally age also determines the family dynamics and lifestyle and the life insurance ideally should be in tune with both these aspects. Having said that in current times there is no rule as to one should get married or have kids so it can vary from individual to individual. If you are single and are working with no dependents (which is likely to be the case in 20s) then there will be no need for a term insurance plan, however you could still choose to buy a retirement plan. As years pass by and you grow older it is likely that your family and dependents may also become independent so you will not only have to buy a term plan in an old age but will also have to increase or decrease the overall cover amount it depending on the family dynamics.
So hopefully you can make an informed decision now when buying a life insurance plan.