Term Insurance for Millennials & Gen Z: Why It Is Important to Start Early

With digitisation in finance, youngsters are becoming more financially savvy and are prioritising financial planning to achieve their desired lifestyle. Unlike previous generations, many millennials and Gen Z focus on managing their finances early in life. They have easy access to financial information and education through social media platforms like Instagram, Twitter, and YouTube, where they can find tips on personal finance. These platforms also help them connect with like-minded individuals, which helps them learn and discuss financial matters. As a result, millennials and Gen Z are realising the importance of financial planning at a young age.

However, despite having one of the youngest populations globally and increased awareness about financial planning and term insurance compared to a decade back, we still remain a country with one of the lowest insurance penetrations in the world. This article highlights the significance of early coverage with term insurance for millennials and Gen Z.

Here's why millennials and Gen Z should buy a term plan early in their life:

1. Financial Stability of Your Family:

Term life insurance offers financial stability to your loved ones, ensuring they can maintain their lifestyle and achieve their life goals even after you are gone. The sum assured received after the demise of the policyholder, known as a death benefit, can be utilised for various purposes such as your child's education, spouse's retirement, or purchasing a home.

Moreover, if you have any unpaid loans, the sum assured can be used to settle these debts, alleviating your family's burden. While if you are in your twenties, you may not have big loans like home loans, many youngsters have education loans to pay off. The sudden demise can leave the families with a huge financial burden. In such cases, the term insurance plan can provide a lumpsum amount to the family to pay off the outstanding loan amount, thereby relieving them of the financial burden.

Term insurance allows you to select the coverage amount based on your income and expenses. Therefore, you can opt for the highest sum assured that your income and age allow, which could otherwise take several years to accumulate through savings.

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2. Affordable Premiums:

Compared to other types of life insurance plans, term plans offer affordable premiums, enabling you to obtain substantial coverage for your family's financial security without incurring a significant financial burden. The affordability of term insurance is primarily due to the absence of an investment component, as these plans do not offer maturity or survival benefits unless you have opted for a specific plan that includes such benefits.

Investing in term insurance at an early age can prove to be a financially wise decision, primarily due to the lower premium costs. The applicant's age and overall health condition are the key factors in determining the term insurance premium. Typically, younger individuals in their twenties or thirties are in better health, resulting in lower premium charges than older applicants. Additionally, the risk of mortality is significantly lower for younger individuals, which is another reason why term life insurance plans are more affordable when bought earlier. Therefore, it is advisable to purchase term insurance early in life to take advantage of these cost-saving benefits.

3. Lock the Low Premium Amount:

When you purchase a term plan, the premium amount remains fixed for the entire duration of the policy, be it 10, 20 or even 50 years. Therefore, buying term insurance at an early age results in substantial savings over the long term.

Let me give you an example. Let's say, Parth, a 25-year-old living in Pune, purchases a 30-year term insurance policy with a sum assured of Rs 1 crore. The annual premium for the policy is Rs 10,000. Since the premium amount is locked for the entire policy term of 30 years, the individual will pay a total premium of Rs 3,00,000 (Rs 10,000 x 30).

Now, let's compare this scenario with Karan, a 40-year-old individual living in Pune, who also purchases a 30-year term insurance policy with the same sum assured of Rs 1 crore. The annual premium for the policy is Rs 20,000 since the individual is older and therefore considered to be at a higher risk of mortality. In this case, the individual will pay a total premium of Rs 6,00,000 (Rs 20,000 x 30) over the entire policy term.

As you can see, purchasing term insurance at an early age can result in significant cost savings over the long term. The younger individual pays only Rs 3,00,000 for the same policy that costs, and the older individual pays Rs 6,00,000. Therefore, it is advisable to buy term insurance early to lock in lower premiums for the entire duration of the policy.

4. Tax Benefits:

In addition to the above-mentioned benefits, term life insurance also offer tax benefits to the policyholders. As per Section 80C of the Income Tax Act, 1961, the premium paid for life insurance policies during a financial year is eligible for deduction from the taxpayer's total income. This deduction is applicable for premium payments up to Rs 1.5 lakhs for each financial year. Thus, if your annual premium payment is up to Rs 1.5 lakhs, you can claim the entire amount as a deduction from your income, effectively reducing your tax liability. By purchasing term insurance at a young age, you can benefit from reduced tax burden during a crucial phase of your life.

To conclude:

Purchasing life insurance can be daunting for first-time buyers. However, as mentioned earlier, term insurance offers multiple benefits that should be considered when choosing a life insurance plan. Buying term insurance early in life can result in a lower premium and provide financial security for your family during uncertain times.

Many individuals choose investment-cum-insurance plans, which often do not provide adequate coverage or generate attractive returns. Opting for sufficient coverage with a term plan and investing the saved money in carefully selected equity mutual funds can be an effective way to obtain maximum coverage while also generating inflation-beating returns.

To avoid future disappointments or disputes, make sure you carefully read and understand all the features, benefits, terms & conditions, inclusions and exclusions, and policy exemptions.

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.