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Should I delay buying life insurance to save premium?

R. Nagesh of Kochi wants to know if he should delay buying insurance. He will not benefit if he does so.

Print Edition: February 5, 2009

I am 30 years old. Should I wait for a few years to buy life insurance to save on the premium?

R. Nagesh of Kochi wants to know if he should delay buying insurance. He will not benefit if he does so. He will pay a higher premium when he is older, will lose out on life cover and may even be denied insurance if he develops a disease in the interim.

It is advisable to buy life insurance early because the premium works out to be lower for a younger person. As a person gets older, his health tends to deteriorate and the risk of death increases. Therefore, insurance companies charge a higher premium if you buy a policy when you are older. You are at an age when the premium is very low and waiting for a few years to buy life insurance may not be beneficial. Besides, you will end up paying almost the same amount over the term of the plan.

NO SAVINGS IN PREMIUM
Age (years)Term (years)Annual premiumTotal premium paid
30303,4301,02,900
35254,1201,03,000
40205,1101,02,200
45156,46096,900
50108,32083,200
Premium for a Rs 10 lakh term insurance cover; premium figures in Rs
    
SAVE LESS, LOSE MORE
Insurance boughtYou save*Miss out on life cover and run the risk of being refused insurance if you develop an illness.
After 5 yearsRs 1.72 lakh
After 10 yearsRs 2.5 lakh
After 15 yearsRs 3.19 lakh
After 20 yearsRs 3.65 lakh
  
*Assuming annual premium of Rs 3,430 is invested to earn 8% till you turn 60

It may be argued that if you invest the premium you save by not taking insurance right away, it could grow to a sizeable sum at the end of the term. True, but there are many pitfalls to this approach. If you do not take insurance at 30, and invest the premium in an option that gives you 8% return, you will certainly have a huge corpus when you are 60. But don't forget that you will also miss out on insurance cover during these years.

There is another risk in not buying insurance early. If you develop a medical condition or contract a disease later, it may not be possible to buy insurance at all. Before selling a policy, insurance companies subject the applicant to a detailed medical examination. At the faintest sign of a disease or medical condition, the premium shoots up dramatically. As mentioned earlier, the chances of chinks showing up in your health armour later in life are infinitely higher.

Worse, if the ailment is serious, the insurance company may refuse to insure the person. After all, which company would want to sell a policy to a person suffering from a heart problem or with symptoms of diabetes. So, buy insurance while you can do so by paying a lower premium.

Admittedly, you may not require a very large insurance cover at this stage of your life. So you could consider plans where the insurance cover increases over the years. The premium for such plans is higher than a plain vanilla term plan. The advantage is that the policyholder does not have to buy a new policy every time he needs to enhance his cover. Even if the policyholder develops a medical condition later in life, the insurance cover continues to grow.

The SBI Life Insurance and Aviva Life Insurance offer term plans in which the insurance cover increases with time. Under the Life Shield plan from SBI Life, the life cover increases by 5% every year or by 50% every five years. Keep in mind though that the increase is in the base cover, not in the enhanced amount. So, if you buy a cover of Rs 10 lakh in 2009, it would grow to Rs 25 lakh by 2024, increasing by Rs 5 lakh every five years.

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