Term Life Insurance Premium – Why it is not good to pay till 85 years?
Term Life Insurance Premium nowadays most people are thinking to pay till 85 years of age.
I really appreciate the persons who are taking this insurance instead of traditional Endowment or Money back policies.
Read this article, Why you should not buy the Unit Linked Insurance Plan for tax-free maturity purpose?…
Most Investment Advisers like me advise our clients to take the term insurance till age 55 or 60.
In addition, We sometimes recommend once you accumulate your targetted corpus stop paying term life insurance.
So, sometimes no need for premiums till 55 years also.
Now, Let’s understand with calculations to understand why you should not pay premiums so many years after your retirement.
Let’s take a case study to do calculations…
Case Study Understand it…
A person aged 25 years of age, looking to take term insurance for 1 core, and the premium term is 35 years.
In addition, the premium approximately Rs.8,000 per year in most companies.
If the same person is looking to pay the premium for the same 1 crore policy, but the premium paying term is 60 years.
In the above case, the premium will be around Rs.15,000 per year.
It is why because, the life insurance companies will charge low if the premium term is low and charge a high premium if the paying term is high.
In our above example, we took Rs.8,000 as premium for 30 years premium term and we took Rs.15,000 for premium paying term for 1 crore sum assured for a 25-year-old person.
Annual Premium for 35 years premium paying term is Rs.Rs.8,000.
and Annual Premium for 60 years premium paying term is Rs.15,000.
In addition, the premiums which I took as an example are randomly taken, and the premium without any riders.
I haven’t tried to check the premiums of any life insurance companies online.
If I try to search online, then they will capture my mobile number and they will call me again and again to purchase the policy.
So, took random premium figures using my experience.
You can check the premium for term life insurance in this link by entering your name and mobile number.
Difference to be observed between 35 term insurance Policy and 60 years term insurance Policy…
- The premium for 25 years aged for 1 crore insurance premium is Rs.8,000 for 35 years policy term.
- In addition, the premium for 25 years aged person for 1 crore insurance premium is Rs.15,000 for 60 years policy term.
- As I said above, the premium for shorter duration policy will be less and at the same time for a longer period policy, the premium will be high.
- In the above image, you can see that the difference in premiums for longer policy ( 60 years) and shorter policy ( 3 years) policy is Rs.7,000.
- You can see in column 4 of the above image that the difference in premium Rs.7,000 is invested in any asset class where you can get a maturity of Rs.1.1 crores at age 85 years.
- In addition, I have assumed that you have taken 35 years of premium paying policy only for the above calculations in the image.
- You can see the maturity of Rs.7000 investment for 60 years at 10.5% return is 2.9 crores.
- Again, You can see the maturity is 7.3 crores assuming 12.5% return in Column 6.
How to understand the above two images?
You should take Life Insurance to protect your dependents from a ” Financial Loss” only.
In addition, You should have a life cover in such a way that you will leave sufficient corpus for your dependant livelihood, to clear your loans.
Let’s say If you die tomorrow, and you need 50 lakh to take care of your family needs in your absence.
Then, You surely need to take term life insurance for 50 lakh.
But the real twist comes here only.
Whether the 50 lakh coverage needed to take for 15 years or 25 years 60 years is a big question?…
Most people will definitely opt for a longer duration policy.
Investment Advisers like me will advise you in a different way.
More Explanation about this strategy…
Let’s say, you need 50 lakh life insurance today.
But you are alive, you have the capability to accumulate 50 lakh in 10 years.
That means your family is dependent on you today is not dependent on you after 10 years.
As you have accumulated 50 lakh in 10 years.
Moreover, You do not need life insurance to take care of your dependent’s livelihood expenses in your absence after 10 years from now.
If you are prepared to pay a premium for 50 lakh for more than 10 years means you are paying premium without a real need.
When you die is uncertain.
But if you opted for a longer duration policy means that you have to pay premium certainly.
In addition, You may be alive even after 85 years also.
If that happens, you will be losing the opportunity of creating wealth as high as 1.3 crores to 7.9 crores which are shown in the above images.
In addition, It puts an extra burden on you today ( while working) and also in the future ( when you retire) to pay the extra premium for 1 crore sum assured.
As you may not be in a position to pay the premiums because of a sudden change in your financial situation ( like income came down) etc.
While at the same time if you opted shorter duration term insurance policy as per your need, You can invest balance amount left somewhere to
In addition, You have the flexibility of increasing or decreasing your investment in other asset classes.
But your chances of decreasing or increasing your term life insurance premium are very minimum.
Read the article about How much Life Insurance Cover that you need under the need-based method?…
It is very clear that when we die is uncertain.
So, paying high premiums certainly for an unnecessary need ( i.e when there are no dependants) is not a wise idea.
In addition, Taking term Life Insurance for a longer period just reminds me of eating too much food without a need.
In case too much intake of food, our physical health will be compromised and in the case of too much premium unnecessarily for longer duration may be bad for your “Financial Health“.
Read an article who is best for you to take investment advice?…
Also, read the article about the 8 benefits of filling the Income Tax Returns. Click this link to read.
Also, read the article, How your Life Insurance Agent is earning more than you? Click this link to read.