EARLIER THE BETTER: Even if it seems like a financial burden, it will prove to be a wise decision later on
Rohit Khanna, a 30-year-old married media professional purchased his first house. However, he was uncertain about shouldering the financial requirements of repaying the debts of the new house, as his family was also dependent on him. To secure his family's future his friend advised him to purchase a life insurance plan.
As a 25 - 30year old (married or unmarried) you may think 'Why would I need a life insurance policy?' As a millennial you would like to explore new avenues, vie for better standard of living and are prepared to take risks. Your mind is filled with dreams and aspirations. But prudence is in devising a financial plan that has elements of financial protection – especially if you have dependents. You cannot ever discount the fact that life is uncertain and full of surprises – a life insurance cover keeps your dependents buckled up financially to fulfill their financial requirements and service debts, if any.
Global studies and research highlight that often millennial between 20s and 30s think that they are ineligible to buy life insurance. It would be wrong to say that life insurance will cost you an arm and a leg, especially a term plan that is one of the most cost-effective policies and offers high sum assured. Also, it has been seen that financial protection decisions taken early have only proven wise. The premium amounts are low at a younger age and so are responsibilities and expenses, which would only go up in future. Premium for life policies run on uncertainties. You may be healthy now and paying a premium may seem to be an added financial burden, but if you suddenly fall ill, you may not be allowed to buy a life insurance policy. Besides in future factors like age, health status, smoking, etc, will only raise your premium for the same cover opted today.
At first, it may emerge puzzling as to which term life policy to buy? Therefore, let's view the four points a millennial should evaluate before purchasing a term life insurance:
(1) Assess your current situation
- What is your present age?
- Are you paying for any loans? ( education, car, house, etc)
- Are you financially responsible member of your family?
- What are your family's future financial requirements?
- What are your basic expenses as per your lifestyle need?
(2) Choose a policy period and cover amount based on your current situation
Given that responsibilities increase year-on-year and taking into account inflation, the thumb rule says that an individual requires insurance cover that is 10 to 15 times of one's annual income. Hence, you can arrive at an adequate sum assured post considering the above factors. Since, a term plan is primarily an income replacement tool, one should opt for a cover until the retirement age or till the time people are financially dependent on him/her.
(3) Find flexible payout options
Some insurance companies offer multiple payout options to policy holders. This allows the policy holder to spend money carefully. But devise a systematic payout plan. It could include increase in monthly payments or lump sum death benefit payments. So, before you select a suitable plan, make sure its elastic enough to suit your financial requirements.
(4) Identify and opt for the right insurer
The rule of thumb is to choose the right insurance company who will keep the promise at the moment of truth – claim settlement. The following parameters will help selecting one.
- Credibility of the company / brand name and repute
- Claim settlement ratio as per the Insurance Regulatory and Development Authority of India guidelines
- Customer service experience
A pure protection cover like a term plan is a must to secure your family's financial requirements, while you can simultaneously opt for other saving and investing tools ensuring all-round protection of your loved ones. Having a term life insurance, sooner or later, just indicates your love and responsibility towards your near and dear ones.
The writer is chief actuarial officer, Aditya Birla Sun Life Insurance
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