Should Gen Z need term insurance?

Gen Z have recently entered the workforce. However, in the midst of high spirits and bucket list, they can neglect to plan ahead. While splurging a bit is natural at this age, it is better to chalk out a goal in advance to deal with life exigencies.

While this generation is unmarried with no major financial responsibilities this could change in the future as they get married or start supporting their parents. So why should one buy a life insurance at an early age?

The age at which you get insurance will determine whether you pay a high or low premium. A 20 or 25-year-old is far healthier than someone twice his or her age and hence pays a smaller premium. Their income is on the rise, thus their rising income will make premiums even more affordable. It is vital to remember that the premium does not grow with age and remains constant during the policy term.

Example: Assume a 20-year-old and a 40-year-old both purchase a term policy for 40 years, with a sum assured of Rs 1 crore. The former has to pay an annual premium of only Rs 5,000 for 40 years, in comparison to the later who has to pay Rs 11,200 for 20 years. This is the advantage of age. The 20-year-old is covered for double the term but pays only half the amount of the total premium paid. In contrast, the 40-year-old is covered for half the term of the 20-year-old but pays more than double the total premium paid.

Delaying the purchase of a life insurance by 10 years increases the premium by 49% for a 25-year-old, 76% for a 35-year-old and 84% for a 45-year-old. The average premium of term insurance with sum assured of Rs. 1 crore has increased from Rs 29,443 to Rs 30,720 in just three months, a growth of 4% in annual premium price between the first quarter of 2021 and the fourth quarter. (Source: Economic Times)

To handle the financial strain, companies were compelled to raise the term insurance premium prices. Along with that, the underwriting of term insurance rates has become more stringent in order to reduce potential losses to term insurance providers.

Data reveals that very few companies have hiked pricing. However, due to the steady growth in claims, underwriting standards have been tightened.

Buying a term plan at an early age can be a smart move. A Term Plan helps lock-in the premium at a lower cost, thus reducing the total expenditure on life insurance over the course of time. So your premium is fixed for the duration chosen. Do note that life insurance premiums increase with age.

You get tax deduction on the premium paid for a life insurance policy under Section 80C of the Income Tax Act. If you have paid premium for multiple policies, you can claim tax benefits on all of them up to Rs. 1.5 lakh under Section 80C of the Income Tax Act.

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