 "Not everyone needs a term plan")
Sixty-five year old Rajendra Shastri’s life insurance policy expired a year ago. He is busy scouting for another as he has a specially-abled daughter who won’t be able to fend for herself after Shastri. As pure life covers or term plans are the cheapest, he can easily afford one.
Shastri kept enhancing his life insurance through various term plans (of varied sum assured) to last him through his working years. And the last one expired a year back.
While Shastri’s is an exceptional case and he may buy a term plan, retirees/senior citizens are typically advised against buying term covers.
Explains Sandeep Batra, executive director at ICICI Prudential Life Insurance, “Term plans cover the risk of loss of income in case of the demise of the earning member of the family. Individuals could purchase a term plan any time – between the time they get married up to their retirement age. Typically, as an individual’s age progresses, the need for pure protection reduces. By then, some of the dependants may no longer be dependent on the income of the life assured and over the years the policyholder could also have accumulated sufficient wealth. One also needs to keep in mind that the mortality charges for individuals in the late 50s or 60s will be high.”
Rajeev Kumar, chief & appointed actuary at Bharti AXA Life Insurance seconds Batra and adds that as one approaches retirement, his/her term cover should reduce in proportion with their liability.
On the flip side, there are some exceptions where senior citizens can also need life insurance. Because they got married late or had kids late or they are yet to finish repaying their loans and so on.
Batra says that many insure their child(ren)'s life these days. However, a life assured in the term plan should be the earning member of the family and not the child.
Same goes for home-makers. “When one is not working, he/she is not likely to secure a financial liability like housing or car loan. Therefore, such individuals don’t need a life cover. At the same time, if one is likely to work in the future, then they should have a term cover in place,” says Vighnesh Shahane, CEO and Whole Time Director at IDBI Federal Life Insurance. A typical case in point is a working woman. She works and then takes a break for raising her child and rejoins work back. Such women cannot afford to not have a term plan. Such women are advised not to discontinue premium payments towards their terms plans. But if you opt out of working then you may not add term covers to your portfolio.
High networth individuals (HNIs) or those with a lot of inheritance can also go easy on term plans, says Kumar, as their dependents have enough. But if the death of a key family member can bring down the family wealth substantially then term plans are needed for wealth protection, he adds. However, HNIs are not seen to be buying term plan for wealth protection. Kumar feels this will happen only when there is a wealth inheritance tax in India like it is abroad.
Between an income earning couple, the one contributing less to the household expenses could also avoid a term plan. Of course, if such a person is a joint borrower, then he/she should have a term cover.
Ideally, term covers should be the first insurance plan one should buy, especially those who have dependents and so it is mostly advised for those married or getting married. It comes cheaper than any other insurance policy --- Aviva Life Insurance’s LifeShield Platinum costs Rs 7,360 annually for a Rs 50 lakh plan. If you buy a term plan online, it’ll cost even less --- Aviva Life Insurance’s i-Life will cost Rs 4,586 a year for the same plan. The sum assured for an individual in the 30s should be approximately 15 times the income.
Shastri kept enhancing his life insurance through various term plans (of varied sum assured) to last him through his working years. And the last one expired a year back.
While Shastri’s is an exceptional case and he may buy a term plan, retirees/senior citizens are typically advised against buying term covers.
Explains Sandeep Batra, executive director at ICICI Prudential Life Insurance, “Term plans cover the risk of loss of income in case of the demise of the earning member of the family. Individuals could purchase a term plan any time – between the time they get married up to their retirement age. Typically, as an individual’s age progresses, the need for pure protection reduces. By then, some of the dependants may no longer be dependent on the income of the life assured and over the years the policyholder could also have accumulated sufficient wealth. One also needs to keep in mind that the mortality charges for individuals in the late 50s or 60s will be high.”
Rajeev Kumar, chief & appointed actuary at Bharti AXA Life Insurance seconds Batra and adds that as one approaches retirement, his/her term cover should reduce in proportion with their liability.
On the flip side, there are some exceptions where senior citizens can also need life insurance. Because they got married late or had kids late or they are yet to finish repaying their loans and so on.
Batra says that many insure their child(ren)'s life these days. However, a life assured in the term plan should be the earning member of the family and not the child.
Same goes for home-makers. “When one is not working, he/she is not likely to secure a financial liability like housing or car loan. Therefore, such individuals don’t need a life cover. At the same time, if one is likely to work in the future, then they should have a term cover in place,” says Vighnesh Shahane, CEO and Whole Time Director at IDBI Federal Life Insurance. A typical case in point is a working woman. She works and then takes a break for raising her child and rejoins work back. Such women cannot afford to not have a term plan. Such women are advised not to discontinue premium payments towards their terms plans. But if you opt out of working then you may not add term covers to your portfolio.
High networth individuals (HNIs) or those with a lot of inheritance can also go easy on term plans, says Kumar, as their dependents have enough. But if the death of a key family member can bring down the family wealth substantially then term plans are needed for wealth protection, he adds. However, HNIs are not seen to be buying term plan for wealth protection. Kumar feels this will happen only when there is a wealth inheritance tax in India like it is abroad.
Between an income earning couple, the one contributing less to the household expenses could also avoid a term plan. Of course, if such a person is a joint borrower, then he/she should have a term cover.
Ideally, term covers should be the first insurance plan one should buy, especially those who have dependents and so it is mostly advised for those married or getting married. It comes cheaper than any other insurance policy --- Aviva Life Insurance’s LifeShield Platinum costs Rs 7,360 annually for a Rs 50 lakh plan. If you buy a term plan online, it’ll cost even less --- Aviva Life Insurance’s i-Life will cost Rs 4,586 a year for the same plan. The sum assured for an individual in the 30s should be approximately 15 times the income.
ALSO READ: Life insurers oppose Sec 45
ALSO READ: Opt for child plans that offer waiver of premium