Life insurance is an investment which offers protection against the sudden death of the insured person. This means that the heirs/nominees of the person whose life has been covered get the sum assured upon the person’s demise. This is true even if only one premium has been paid. Therefore, life insurance is a protective umbrella that a person can have. This gains importance when the person who is the main earning member of the family dies suddenly. It is then that the life insurance policy payout saves the family from financial disaster.
A life insurance policy is a forced saving. The premium should be paid every year, and the premium amount is a saving. Therefore, a portion of the earnings will be saved each year. This is an important aspect of a life insurance policy. This investment will pay off at the end of the tenure of the policy.
The rule is that the lower the age, the lower the premium. As a person grows older, the premiums keep rising. The fact is that since the basic idea is to offer a life cover, the older the person is, the more risk the company takes. Therefore a policy is best taken at a young age. Parents can take a policy for their children when they are very young. Let us see what benefits that might have. There are several life insurance plans available.
Parents may take out a policy when their child is 10 or 11 years old with a tenure of 10 years. Therefore the policy will mature when the child is an adult. At this time, he or she may need a lump sum of money for higher education. The policy return will take care of it. There are no strains on the family finances. In the case of a girl child, her marriage expenses may be met from the policy payout. If the policy amount has been calculated carefully, the expenses can be taken care of in any of these cases. This is one of the benefits of life insurance policies. Forced saving and money at the right time to take care of large expenses. There is another advantage. Loans can be obtained against insurance policies. A sudden need for funds can be met from a loan against the policy, ensuring that it can be resolved whatever the problem.
Now, if we study the premium plans for insurance policies, the person’s age is the most important criterion for calculating the premium. While a 23/24 year old person may pay between 4000 to 5000 INR per annum for a 1 lac policy, a person in his forties will pay more than double that. The benefits, in either case, are the same. So the policy for the older person is more expensive. This is why insurance companies try to impress upon people that insuring early is better. There is another equally important factor. As a person ages, losing income becomes greater, not always, but the risk is there. Older people are more susceptible to diseases which might reduce their earning capacity. In this case, the premium payment ability may not exist, and the policy may never be taken. This exposes the person to the risk of leaving his family in distress in case of sudden death.
Therefore the best time to invest in life insurance is when you are young. This ensures forced savings and a lump sum returns at the specified time. If the term is 20 years and the person insures when he is 25, then he is assured of a substantial sum of money when he is 45 tears old. That is a time when such a sum may be all-important in life.