I am 30, I am taking a term life insurance for 55 years with premium paying term only 10 years. It is good no?

No. it is not good. It is like throwing your hard earned money down the drain! Please read on to find out why it is not good.

Term life insurance

This is the cheapest insurance to cover the risk of loss of income for your dependents if something happens to you. You need to take the insurance only till there is risk, meaning till your working life. As most people work till 55 or 60 years, you should take it till that age only.

“This is term insurance I will not get back anything, so I will take it till 85”. Of course if you are hell bent on wasting your money on something you don’t need, then you will not have money when you need it most!

Why then do insurance companies offer polity till 85 years of age? They need to make money no, that’s why!

Enter limited pay

When life insurance companies realized they will not be able to push people to take term insurance till 85 yrs of age, they brought what is called limited pay. What is this? Well you wanted to take term insurance till 85 years of age. But you will stop working when you turn 60. And you may simply stop paying further premiums. So, they a wonderful scheme to get your money earlier! Enter Limited Pay. You can take a policy for 55 years but pay the premiums earlier in 10, 15 or 20 years as per your preference. Are they doing you a favour? No. They are milking away your money before they can rightfully get it! Ever heard of any company paying your salary earlier? Why they should you pay the life insurance company early? And if something happens to you after the limited pay period, your family gets the same Sum assured, but you have already paid all the premiums in advance!

Example case:

Let us do some calculations. Let us take the case of a healthy 30 year old male non-smoker. As example I have taken ICICI pru iprotect smart.

Premium for 30 year policy yearly premium: Rs. 8279

Premium for 55 year policy, 10 year limited pay premium: Rs. 35,237

Premium for 30 year policy, yearly premium: Rs. 8,279

Premium for 55 year policy, 10 year limited pay premium: Rs. 35,237

As can be seen, by 60 years, the expected value of the difference in premium at invested at 8% return is Rs. 15.5 Lakhs, at 10% return 26.5 Lakhs and at 12% return 44.4 Lakhs. And if the investment is continued, it would be worth much more for you and your family in the future!

Conclusion:

If you want to make prudent use of your money and investment, stay away from the policy coverage till 85 and limited pay options.

3 thoughts on “I am 30, I am taking a term life insurance for 55 years with premium paying term only 10 years. It is good no?”

  1. Pingback: Confused Choices in Term Insurance – A Case Study - MoneyChai

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