Insurance
Insurance is an agreement through which the insurance provider (Insurer) guarantees payment of a pre- decided sum to the policyholder (insured) during covered contingencies subject to successful premium payments and a few other rules. These contingencies include loss or damage to life, health, or property. Based on these, we can classify insurance into three main categories, life insurance, health insurance and general insurance.
Life and health insurance protect life and health, respectively. And general insurance covers every property and activity, like houses, vehicles, valuables, travel, etc. Life insurances are of several types based mostly according to their premium payment duration and coverage duration. Given below are the four basic categories of life insurance.
Term Insurance
Term insurances have a range of term options. These provide insurance cover to people with adequate maturity returns only for the policy duration. In case of with return of premium term insurance (TROP), after the policy termination, the policyholder will get maturity returns and no further cover or benefits. As this policy doesn’t have any extra benefits after maturity, it can provide high returns on maturity. So, when a policy expires, you will have to purchase another plan or extend the existing one to have valid life coverage.
Whole Life Insurance
These life insurances provide life cover even after providing maturity benefits to the policyholder. So, with a single policy, you can have a cover for an entire lifetime. But some insurers limit this cover when the policyholder reaches the age of 100. Because of the lifetime cover, the maturity returns are not as much as term insurance.
Universal Insurance
Universal insurance has several benefits along with those of the whole insurance. You can get benefits like loans, partial withdrawal, higher interest rates, and modes of repayment. These plans are suitable for people with dependent family members as they have high mortality returns.
Variable Insurance
Variable insurances are similar to universal insurance, but they invest your premiums into market-dependent security funds. So even though your returns are risky but have the potential to increase extremely. These insurances have interest rates higher than any of the banking financial instruments. Unit Linked Insurance Plans(ULIP) are an example of variable insurance. A disadvantage of variable insurance is that there are several risks on the capital and returns, so they are not suitable as a guaranteed investment for families.
7 Advantages of Buying Term Insurance Before 30
Having term insurance can aid you in times of dire needs. Term insurance can help the family alongside providing several savings benefits for the policyholder. As most term insurances mature within a short span of one or two decades, you can even use these funds for family or investment purposes.
By 25, most people complete their studies and finish a few years of employment. In this career-focused world, youngsters give more importance to becoming self-dependent before starting a marriage life. And most of these people won’t have many family obligations or dependents. So, by the time they are near 30, they must have enough funds to allocate for good investment options.
There are several advantages to using term insurance as an investment option, especially before reaching the age of thirty. Term insurance provides life/health covers, high and guaranteed returns, tax benefits, and several other monetary and trustworthy assistance. An age group that can highly benefit from term insurances is 25 to 30, as most of the benefits of term insurance result from long term durations and availability of funds. Discussed below are the seven most common advantages of investing in term insurance before 30.
Cheap Premium Rates for Young People
Premium rates of an insurance policy depend upon the age, health, savings possibility, term duration, opted coverage, etc. But it mainly depends upon the policyholder’s age, and most of the policies have an increasing rate with increasing age. This is because, with increased age, the insurance providers have to take more risks. Also, most policyholders are old aged people who look for maturity or mortality benefits within a short period. So, to attract more young people to balance the risk and income, insurers keep lower prices for younger people.
You can benefit from this as once you start paying premiums, your premium amount is permanent and won’t change. Hence enabling you to have good term insurance for cheap premiums, which won’t affect your finances. And with career growth, your income keeps on increasing over the years, and you will stop feeling the premium as a burden. If you purchase insurance later, the higher age and any health complications can substantially increase the premium amount. And paying these high amounts can cause financial instability in your family.
Large Mortality or Maturity Cover
Insurers also provide the insured a high mortality/maturity cover due to the lower risk liabilities and to retain long term customer relationships. To endorse their products to younger people, they provide perks like a larger cover compared to other insurance instruments. Insurers also benefit highly due to the large accumulation of funds from the customer. Thus, this two-way benefit will allow you to have more coverage in the early years of your life.
Increased Interest Returns Due to Longer Terms
If you are investing in term insurance before you turn 30, you can opt for further extensions on the term. So, you can keep investing in the funds till you have an income source or reach retirement age. This extended term increases the compound interest your invested funds gain. Through long terms, your investment can gain much more in comparison to short terms even if the long-term interest rate is low. And due to multiple compounding of investment annually or monthly, the more your investment duration, the more returns you get.
Several Tax Savings
The major benefit of any term insurance is tax savings. The Indian government gives several relaxations to the policy payer on premium payments. In most term insurances, you can claim up to INR 1,50,000 deductions in the taxable money of your income tax per annum based on the type of insurance. So, if you joined term insurance before you turned 30 and opted for a 30-year policy term, you could claim this deduction 30 times. This means, by the end of the term, you can save about 45,00,000 from being taxed throughout the investment years.
The tax benefits of term insurance don’t end there. The amount you receive at policy maturity (only the premium payments and not the interest returns) is fully tax-exempt. There is no tax deduction on them, as they are a type of repayment of funds. These tax exemptions on the premium return and interest returns are as per Section 10(10D)[1]. But the eligibility of this exemption is only for plans that have annual premium amounts that are lower than 10% of the assured sum.
Investment for Children’s Life Occasions
Another great benefit of purchasing term insurance before you turn 30 is that you can start investing in your child. Sometimes even before they are born, if you correctly align the maturity date of your insurance plan with the time your child reaches 16 or 18, you can provide the necessary funds. These funds are useful for the costly education and other important stages of their life like relocation to better places, marriage, building a house, or even investing in their future ventures.
Even if you don’t use them for any of the above purposes, you can use the high returns of these long-term life insurances as a backup or emergency fund. You can also further increase your perks and savings by investing in child plans. Sometimes most people don’t go for a child plan or rider facility and continue the existing policy while keeping their child as the policy nominee. By doing so, you can ensure that your child gets the mortality benefits in your absence.
No Increased Expenses in the Later Life Stages
If you don’t opt for an extension, a term plan will usually end in 20 years. So, if you start investing in term insurance by the age of 25, the policy will mature when you reach 45. Most people have conventional expenses when they reach this age. Some examples are children’s education or marriage, purchasing property, renovating homes, medical expenses of elderly family members, and other expenses for improving lifestyle. So, when the term insurance ends, you can divert the money you pay as premiums towards these expenses and keep the maturity returns as a savings fund.
High Corpus Generation for Retirement
The best help that term insurance provides is the high corpus generation. You can save a lot of money through the years with these plans and use those savings, as savings are an essential tax saving tool while entering retirement life. These days, where the cost of living keeps on increasing, not having adequate funds for your non-earning years is a risk. Especially for people with chronic diseases and other illnesses, the monthly medical expenses can consume a good amount from your savings plan.
The high corpus from long term insurance will provide you with enough funds to meet all the day-to-day, medical and unexpected expenses. Most plans have an endowment or monthly income features. Through it, you can get a monthly income from the insurance company for the rest of your days. By investing in such plans, you can enjoy your life without worrying about retirement.
Conclusion
Now that you know these advantages, what stops you from purchasing term insurance? It will benefit you and your family in times of need and that too with very low investment. You can highly increase your returns from investing in term plans with an early start. So do start term insurance as soon as possible.
