The value and length of a life insurance policy largely depends on a person’s protection needs at different stages of their life. There are many factors that go into determining the sum insured required by a person and all of these factors dramatically change the insurance needs as one gets older in life.
At the start of a career, you don’t have a lot of financial responsibility to cover them with insurance protection. Therefore, the normal instinct is to postpone taking out life insurance until one gets married or even until the responsibility increases with the arrival of a child in the family. At this stage, we feel that he must provide financial protection to the child and the spouse.
Need a term plan
A young man on the threshold of his working life is a potential creator of wealth not only for himself but also for his parents, his spouse and his children; and his sudden disappearance due to illness or accident could cause unimaginable hardship for surviving family members. A term insurance policy with endorsements to maximize insurance protection at minimum cost would be the right choice at this stage of life.
The next step is where you create assets by engaging in a few IMEs. There is nothing wrong with using affordable loans to make life more comfortable. But such financial responsibilities make dependent family members financially vulnerable if the breadwinner succumbs to an accident or fatal illness or even a pandemic. The previously purchased term insurance policy could be used to discharge the mortgages or pay off the loan.
However, to maintain the standard of living of the family, the family would need a much larger cash flow each month. A term insurance policy taken 10 years back would be insufficient to provide the required body of work. The average sum insured for life insurance policies today is almost double the average sum insured ten years ago.
Go for the riders
It is advisable to take out an additional policy with an additional sum insured and riders such as double accident indemnity, critical illness indemnity, family income allowance rider, premium waiver rider, etc. One or two policies to support the education of a child in the absence of a father or mother is recommended at 40-45 years.
Life insurers are the only providers of long-term care when a person needs support and services but cannot make a living to provide such facilities. Thus, mid-career, one must review his life insurance portfolio and purchase deferred annuity products for himself and his spouse.
These products offer a life annuity payable monthly, quarterly, semi-annually or annually. Annuity rates depend on the age of the annuitant and the deferment period, the length of time after which funding stops and the annuity begins. Every policyholder should review this product well in time, because the delayed purchase of annuity plans means a lower annuity rate for the annuitant. Joint life annuity plans also provide lifelong financial security for the spouse.
Life insurance is cheaper when you are younger. But reviewing your portfolio from time to time is absolutely necessary. Cheaper at a younger age does not mean saying ‘no’ to life insurance in middle or old age.
The writer is the former Managing Director and CEO of Star Union Dai-ichi Life