Life is unpredictable and can sometimes take unexpected turns. The best way to safeguard yourself and your loved ones from unforeseen circumstances is by taking proactive measures. One such step is opting for life insurance. Many young adults, however, overlook the importance of life insurance considering it something that they need to think about only later in life. This perception is far from the truth. Let’s delve into the advantages of starting early and securing long-term benefits.
The Concept of Life Insurance
But what is life insurance? At its core, life insurance is a contract between an individual and an insurance company. The individual pays a certain amount of money known as a premium at regular intervals. In return, the insurance company agrees to pay a sum of money to the designated beneficiaries upon the death of the individual. The primary purpose of life insurance is to provide financial security to the individual’s family after their demise.
Why Young Adults Should Consider Life Insurance?
Starting life insurance at a young age offers several significant advantages as follows:
1. Lower Premiums
The younger you are when you purchase a life insurance policy, the lower your premium will be. This is because the risk of mortality is generally lower for younger individuals, given their typically better health and longer life expectancy. Therefore, starting early can result in significant savings throughout the policy.
2. Investment Component
Some life insurance policies like endowment plans and unit-linked insurance plans (ULIPs), also have an investment component. The premiums you pay are partially used to build a cash value that grows over time. This can serve as a long-term investment and wealth accumulation tool.
3. Financial Security for Loved Ones
If you are a young adult with dependents, life insurance becomes crucial. It ensures that your loved ones are financially secure in your absence providing them with a safety net.
4. Benefits of Compounding
The longer the tenure of your insurance policy, the more time your money has to grow. This is due to the power of compounding where your interest earns further interest over time. Starting early allows you to reap the benefits of compounding.
5. Tax Benefits
In India, the premiums paid toward life insurance are eligible for tax deductions under Section 80C of the Income Tax Act. The maturity proceeds from the policy are also tax-free under Section 10(10D), subject to certain conditions.
6. Coverage for Loans and Debts
As a young adult, you might have taken on certain financial obligations such as a student loan or a car loan. In the unfortunate event of your demise, these obligations would fall upon your co-signer or next of kin. A life insurance policy can help cover these debts, relieving your loved ones of this financial burden.
7. Financial Planning Tool
Life insurance can also act as a valuable tool in your overall financial planning. For instance, you can align the maturity of your life insurance policy with your long-term financial goals, like buying a house or funding your children’s education. This ensures that you have a significant sum of money available when you need it.
8. Coverage for Health Issues
Some life insurance policies offer riders or add-on benefits, that provide coverage for critical illnesses or disability. If you were to develop a serious health condition, these riders could provide a lump sum benefit, helping to cover medical costs and loss of income.
9. Peace of Mind
The ultimate benefit of life insurance is the peace of mind it brings. Knowing that your loved ones would be financially secure in your absence can provide immense mental and emotional relief.
10. Flexibility and Customisation
Life insurance isn’t a one-size-fits-all solution. One of its significant benefits is the flexibility and customisation it allows, to cater to diverse needs and goals. Whether it’s the duration of the policy, the payout structure, or the addition of riders, life insurance policies can be tailored to fit your unique circumstances.
Selecting the Term of the Policy
The term of the policy refers to the duration for which you are covered. Policies can range from term life insurance which offers coverage for a specified number of years, to whole life policies that provide a lifetime of coverage. As a young adult, you have the flexibility to choose a longer term ensuring coverage well into your old age.
Choosing the Payout Structure
Different life insurance policies offer varying payout structures. Some provide a lump-sum amount upon the policyholder’s demise, while others offer a regular income to the beneficiaries. Some policies combine both these elements. Depending on your financial goals and your dependents’ needs, you can select the most suitable payout structure.
Adding Riders for Additional Protection
Riders are add-on benefits that you can opt for along with your life insurance policy providing additional protection. Common riders include critical illness riders, accidental death and disability riders, and premium waiver riders. For instance, if you were to be diagnosed with a critical illness covered by your rider, you would receive a lump sum payout irrespective of your policy’s term.
The Right Time to Buy Life Insurance
There’s a common saying in the world of finance: “The best time to start was yesterday. The next best time is now.” Delaying the purchase of life insurance can result in higher premiums and potentially less coverage. Even if you are young and healthy, life insurance should not be put on the back burner.
Life insurance is more than just a financial product; it’s a tool for protecting your loved ones and securing their future. Young adults, in particular, stand to benefit significantly from starting their life insurance journey early. Lower premiums, investment components, the safety net for dependents, compounding benefits, and tax incentives are just some of the compelling reasons to consider life insurance. The earlier you start, the more you stand to gain. So, why wait?