Term Insurance for Different Life Stages: Importance And How to Decide the Coverage

As we age, our needs tend to increase. While we may have limited responsibilities as children, we gradually require more things as we grow older, such as education, loans, homes, cars, properties, assets, and lifestyle expenses. For many people, term insurance is not an option but a necessity, especially for those with dependents. Term insurance provides coverage against uncertainties like death, disease, and disability. Hence, it is important to understand why and how term insurance may be necessary for individuals at different stages of life.

Term Insurance for Different Life Stages:

A term insurance plan provides financial coverage to the nominees in case of unfortunate events such as the death of the policyholder. The primary objective of term insurance plans is to provide long-term financial security to the policyholder's family members. In the event of the policyholder's death, the nominees receive a death benefit to sustain themselves financially, either as a lumpsum or in monthly instalments. As each stage of life brings new responsibilities and financial needs, the policyholder needs to consider these changing needs when selecting a term insurance policy. For example, a married individual with dependents requires comprehensive coverage.

Here are some different life stages and suitable life insurance plans that you can consider purchasing:

1. Young Adults:

When you are a young adult, typically in your early 20s, you are probably single. Your responsibilities may be limited as you are either studying or just starting your career, have parents who are still earning, and don't have many liabilities or assets to manage. You may not have any dependents, and your main responsibility may be repaying student loans.

Therefore, the most crucial policy to invest in at this point would be disability insurance. You also need to protect yourself if you become disabled and are unable to earn an income. Another significant insurance policy to consider purchasing at this stage is health insurance, as the cost of healthcare in the event of hospitalisation can be quite high. It is important for young adults to purchase term insurance plans for two crucial reasons:

• - To ensure that your education loans are covered by term insurance in case of any unfortunate event.

• - To provide financial support to your parents in case one of them is no more around.

Most education loans range from Rs 10 lakhs to Rs 30 lakhs. Hence, a good starting point for you would be term insurance with a sum insured between Rs 20 lakhs and Rs 30 lakhs. A term period of 30 to 40 years would ensure a high sum assured at a low premium.

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2. Married Couples:

In the late 20s or early 30s, most people have established careers and stable salaries and are more settled than in their 20s. They may also have taken on financial responsibilities, such as purchasing a car or a house and may have outstanding loans. This age is also when many people in India get married. These factors make life insurance plans necessary at this stage.

Married couples should consider buying term insurance for the following reasons:

• - So that their loved ones have adequate financial resources to pay off their loans, such as house loans or car loans.

• - To provide financial support for their family if the policyholder passes away.

While choosing the coverage amount, you should consider your financial situation and requirements, but make sure it is adequate to pay off any outstanding debts and provides a stable income for your family. As people's incomes increase with job changes and promotions, they may want to increase their term insurance coverage to match their ability to pay premiums. It is advisable that those in their late 20s and early 30s buy term insurance plans that are five or six times their annual salary. For example, if you earn Rs 12 lakh per year, you should consider a term plan of at least Rs 60 to 75 lakhs.

3. Parents:

During the late 30s and early 40s, your priorities shift from focusing on yourself to looking after your family, including your spouse, ageing parents, and children. As children's needs grow, such as education expenses, hobbies, and extracurricular activities, and parents' healthcare needs increase as they age, providing financial support becomes essential. Furthermore, retired parents may rely on their children for financial assistance. Hence, you must ensure you have comprehensive insurance coverage that covers life, disabilities, and critical illnesses. Ensure that the coverage is sufficient to cover major expenses such as children's higher education, weddings, etc. and provides adequate income in your absence.

Hence, if you are in your late 30s or early 40s, you should consider purchasing term insurance plans to provide financial security to your entire family and cover expenses if an unforeseen event happens. It is advisable to calculate the required term insurance coverage based on your individual needs. However, many experts suggest you have a term insurance coverage of at least Rs 1 cr or above.

4. Elderly Couples & Retirees:

Elderly couples, typically above 50, either begin to plan for their retirement or are already retired and face bigger expenses, such as their medical needs and children's higher education, weddings, etc. While some elderly individuals or retirees may have saved enough money for their retirement, some of them may want to leave a financial legacy for their children or grandchildren, and a term insurance plan may be appropriate for that purpose. It should be noted that many term insurance companies have a maturity age of 65 or 70 years. Therefore, it is advisable for them to purchase term insurance plans for the following reasons:

• - To continue providing financial protection for their family, especially the spouse, in the event of their death.

• - To ensure that any outstanding loans they leave behind can be paid off using the sum insured from their term insurance.

• - To cover significant expenses such as their children's education or wedding with the term insurance payout in case of their demise.

To conclude:

As time goes by, your financial responsibilities grow, along with the cost of living. In addition, market inflation and the rising prices of essential goods and services must also be considered. Therefore, the sum assured that seemed adequate at the time of purchase may not be enough 10-15 years later. It is crucial to review your term insurance coverage periodically to ensure it keeps up with your changing needs.

KETKI JADHAV is a Content Writer at PersonalFN since August 2021. She is an MBA (Finance) and has over seven years of experience in Retail Banking. Ketki specialises in covering articles around banking, insurance, personal finance, and mutual funds and has been doing it for over three years now.

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