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The importance of Life Insurance for young adults

Team AckoMay 28, 2024

Life is unpredictable, and taking steps to secure our future and the future of our loved ones is essential, especially in a country like India where family holds great significance. One of the most important financial decisions young adults can make is investing in a life insurance policy. Life insurance not only provides a safety net but also offers peace of mind, financial security, and a sense of responsibility. In this article, let’s explore the importance of buying life insurance early.

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Contents

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Why should young people buy life insurance?

Here are the reasons why buying life insurance early is a good idea.

  1. Financial Protection for Loved Ones: Life insurance acts as a financial cushion for your family in case of your untimely demise. It ensures that your loved ones don't face financial hardships, debts, or other expenses. The sum assured can assist in covering daily living expenses, children's education, outstanding loans, and even future financial goals.
     

  2. Start Early, Save More: Starting a life insurance policy at a young age comes with numerous benefits. Premiums for life insurance policies are usually lower for young, healthy individuals. By investing early, you lock in a lower premium for the entire policy term, which means you save more in the long run.
     

  3. Accumulate Savings and Investments: Certain life insurance plans, such as endowment and unit-linked insurance plans (ULIPs), offer a combination of insurance and investment. They help in building a corpus over time, which can be used for various purposes like buying a home, funding a child's education, or planning for retirement.
     

  4. Tax Benefits: Life insurance policies also offer attractive tax benefits under the Income Tax Act. The premiums you pay for your policy are eligible for tax deductions, and the maturity amount is tax-free, making it a tax-efficient investment.
     

  5. Financial Discipline: Purchasing a life insurance policy instils financial discipline. Paying premiums regularly ensures that you set aside some money for important purposes, encouraging responsible financial behaviour.
     

  6. Loan Facilities: Many life insurance policies offer loan facilities against the policy's cash value, providing a financial lifeline during emergencies or financial crises.
     

  7. Easing Burden on Parents: Life insurance for young adults is about protecting your family and lessening the financial burden on your parents. In case of unfortunate events, they won't have to struggle financially while dealing with emotional loss.

Which type of life insurance plan should I buy in India?

Here are the types of life insurance plans available in India.

  1. Term Insurance: The Simple Protector

Term insurance is like a shield that protects your family financially for a specific period, known as the policy term.

  • Why choose it?

  • It provides a high coverage amount at an affordable premium.

  • Ideal for those looking for pure protection and financial security for their family.

  • Things to consider:

  • Select an appropriate policy term that aligns with your financial responsibilities, like loan repayment or children's education. 

  1. Whole Life Insurance: Lifelong Assurance

Whole life insurance covers you for life and often includes a savings or investment component.

  • Why choose it?

  • Provides lifelong protection, ensuring a payout to your family whenever you pass away.

  • It can accumulate cash value over time, serving as a savings tool.

  • Things to consider:

  • Understand the premium commitments, as they are typically higher than term insurance.

  1. Endowment Plans: Savings with Protection

Endowment plans provide life cover and savings, offering a lump sum at maturity or to the nominee in case of your demise.

  • Why choose it?

  • Combines insurance and savings, making it a good option for long-term financial goals.

  • Provides maturity benefits, which can be helpful for major life events like buying a house or funding your child's education.

  • Things to consider:

  • Check the maturity benefits and compare them with other investment options to ensure it fits your financial goals. 

  1. ULIPs: A Blend of Insurance and Investment

Unit Linked Insurance Plans (ULIPs) are a mix of insurance and investment. Here a part of the premium goes towards insurance, and the rest is invested in market-linked funds.

  • Why choose it?

  • Allows you to participate in the potential growth of the market.

  • Flexibility to switch between investment options based on your risk appetite.

  • Things to consider:

  • Understand the charges involved, like fund management fees and allocation charges. 

  1. Money-Back Policies: Periodic Returns

Money-back policies provide periodic returns during the policy term, along with life coverage.

  • Why choose it?

  • Offers periodic payouts, providing liquidity at regular intervals.

  • Combines insurance with savings, ensuring financial security and savings benefits.

  • Things to consider:

  • Be aware of the policy terms and the frequency of payouts to align with your financial requirements.

Advantages and disadvantages of buying life insurance early

Following are the advantages and disadvantages of buying life insurance at a young age.

Advantages:

  1. Lower Premiums: Buying life insurance at a young age often means lower premiums. Insurance companies can underwrite you better (as per your risk profile), and therefore, the cost to insure your life is usually more affordable.
     

  2. Accrual of Cash Value: Certain life insurance policies, like whole life or endowment plans, accumulate cash value over time. Starting early means your policy has more time to grow in value, offering a financial cushion in the long run.
     

  3. Financial Protection for Dependents: Life insurance ensures that your family is not in financial distress if you are not around for them. This financial support can help cover daily expenses, outstanding debts, and future education costs for your children.
     

  4. Facilitates Future Financial Goals: Life insurance can serve as a tool for future financial planning. It can be used to finance significant life events such as buying a house, funding your child's education, or planning for retirement.
     

  5. Peace of Mind: Buying life insurance early brings peace of mind, knowing that your family will be financially stable even if something unexpected happens to you.

Disadvantages:

  1. Cost Concerns: Despite lower premiums for young buyers, the cost of insurance can still be seen as an added financial burden, especially for individuals just starting their careers and managing various expenses.
     

  2. Tied-up Funds: Certain life insurance plans may tie up your funds for an extended period. Access to these funds may be limited or subject to penalties if you decide to withdraw or surrender the policy prematurely.
     

  3. Changing Needs: Life circumstances and financial needs evolve over time. The life insurance plan you choose early may not align with your requirements as you grow older and your responsibilities change.
     

  4. Availability of Income: Some individuals may find it challenging to commit to long-term premium payments due to uncertain or fluctuating income sources, especially in the early stages of their career.
     

  5. Limited Understanding: Young individuals might have limited financial knowledge, making it crucial to thoroughly understand the terms, conditions, and implications of the insurance policy they're purchasing.

What is Acko Life Flexi Term Plan?

The ACKO Flexi Life Plan is a unique term life insurance plan. Imagine it as a promise that says, "If something happens to you, we've got your family's back financially." Now, what makes this plan extra cool is that it's really flexible!

Flexibility means you can change things in the plan as your life changes. Let's say you want your family to get a bit more money or the plan to last a bit longer - you can tweak that! You can also decide how often you want to pay for it and how the money is given to your family.

And guess what? It even helps you create a will! A will is like a special letter where you can say who gets what when you're not here anymore. This way, you can make sure your family gets the money just the way you want it. So, it's not just any insurance; it bends and adjusts to what you need, making sure your family is taken care of just the way you'd want it!

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Frequently Asked Questions

Here are some common questions about the importance of buying life insurance for young adults.

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Is it a good idea to buy life insurance when I'm in my twenties? 

Yes, buying life insurance in your twenties is a smart move. It's often more affordable, and it provides valuable financial protection for your loved ones.

Do many young people get life insurance nowadays? 

Yes, many young people are recognizing the importance of life insurance. It's a way to secure your family's financial future and protect them from unexpected circumstances.

Am I too young to think about life insurance in my twenties? 

No, you're not too young! In fact, getting life insurance in your twenties is a proactive step towards ensuring financial security for yourself and your family.

Which is better for people in their twenties: Term Life or Whole Life Insurance? 

For most people in their twenties, term life insurance is a better choice. It's affordable and provides coverage for a specific period, which aligns with your needs at this stage of life.

Why is having life insurance important? 

Life insurance is important because it offers financial protection to your loved ones in case of your untimely demise. It provides peace of mind and helps cover outstanding debts and living expenses.

Is it smart to get life insurance just for tax benefits?

While tax benefits are a plus, the primary reason to get life insurance should be to secure your family's financial future. Tax benefits are an additional advantage.

What type of life insurance is right for different stages of life?

In your twenties, term life insurance is usually the best choice. As you age and your financial circumstances change, whole life insurance might become a more suitable option.

Can i get life insurance for a certain number of years? 

Yes, that's term life insurance! You can choose a term that suits your needs, and once the term ends, you can decide whether to renew or explore other options.

How long does it take to get money from life insurance if someone passes away?

Typically, life insurance payouts are processed within a few weeks after the necessary documentation is provided to the insurance company.

Is it a good idea to have life insurance?

Yes, having life insurance is a responsible and caring decision. It provides financial security for your loved ones and peace of mind for you.

Why is insurance important for students?

Insurance for students is crucial because it can cover medical emergencies, accidents, and belongings. It offers protection during an important phase of life.

Can you explain life insurance in a simple way?

Life insurance is a contract where you pay a small amount regularly, and in return, the insurance company gives a larger sum to your family if something happens to you.

What is term life insurance and what's good about it?

Term life insurance provides coverage for a specific period, offering financial security at a lower cost compared to other types of life insurance.

How can life insurance be useful in everyday life?

Life insurance brings peace of mind, knowing that your loved ones will be financially protected if anything were to happen to you. It's like a safety net for the unexpected.

Does life insurance end at some point?

Term life insurance ends when the term is over, but you can often renew or convert it to a different type of policy. Whole life insurance, on the other hand, lasts your entire life.

When should I think about getting life insurance?

Start thinking about life insurance in your twenties or when you have dependents. The earlier you start, the more affordable it can be.

How much life insurance can I actually get?

The amount of life insurance you can get depends on factors like your age, health, income, and lifestyle. It's important to discuss this with an insurance agent.

Can I have two term life insurance policies at the same time?

Yes, it's possible to have multiple term life insurance policies to ensure adequate coverage for different needs.

Which one is better: Term Insurance or Life Insurance?

Term insurance is a type of life insurance. It's often a great choice for young individuals as it provides coverage for a specific period, keeping it affordable. Whole life insurance is another option that provides lifelong coverage but comes at a higher cost. Choose based on your needs and budget.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes. Please go through the applicable policy wordings for updated ACKO-centric content, and before making any insurance-related decisions.

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