Sukumar was 60 when he purchased a term insurance. He opted for a term life insurance plan as his children were still studying, and his wife was financially dependent on him. Sukumar had not invested in any financial instrument which could help him build a retirement corpus, or provide a regular source of income, like pension funds. Sukumar, however, had to pay a hefty amount as premium payment. Like Sukumar, any individual can opt for a term insurance at the age of 60. But, because of the high cost of term insurance at the age of 60, one must opt for the term plan only if it is unavoidable. It is best to avail a term policy when as soon as one starts earning.
Understanding term insurance:
A term insurance is a type of life insurance which provides financial protection to the policyholder’s family in the case of an unfortunate eventuality. The scope of a term policy can further be enhanced by purchasing riders or add-ons like accidental death rider, waiver of premium for disability rider and complete disability rider. Insurance companies consider a slew of factors like age, gender, habits like tobacco consumption along with the existing medical condition of an individual to calculate the premium amount for a term policy.
Anyone between the age of 18 years and 60 years can purchase a term policy for a term ranging between 5 and 20 years. But, the premium amount increases with age because of the increased health-associated risks. The cost of term insurance at the age of 60 can be more than three times that of a 40-year-old person. For instance, while a 40-year-old person can purchase a term policy of Rs 1 crore by making annual premium payments of around Rs 14,000, the same plan will cost more than Rs 76,000 for a 60-year-old person. Premium rate for the same plan for a 30-year-old person will be around Rs 7,000.
Besides, with the increase in age, insurance companies provide lower term of coverage. For instance, while a 30-year-old person can avail a term life insurance for a term of 20 years, or more, a 60-year-old person can avail it for a maximum term of 10-15 years.
Does it make sense to purchase term insurance at the age of 60?
Despite the higher cost of term insurance at the age of 60, it still makes sense to purchase a term plan an individual is still working, and wants to leave the spouse or children with a death benefit. Here is a list of the possible scenarios where purchasing a term policy at the age of 60—irrespective of the high premium—is still feasible:
- Financial requirements of children: An individual can ignore the high cost of term insurance at the age of 60, if one still needs to provide funds for children. With late marriages becoming common, an individual’s children will be fairly young at the age of 60, and one can take a term policy to provide for the financial requirements of children.
- Financial requirements of spouse: It becomes imperative to take a term life insurance policy at the age of 60, if an individual doesn’t have pension funds, but still wants the spouse to remain self-reliant. The death benefit accruing from an individual’s term policy would ensure that the spouse is not left in a lurch.
- Liabilities and outstanding debts: If an individual has liabilities or unpaid debts even after the age of 60 years, opting for a term life insurance policy makes sense. In the case of any unfortunate eventuality, the family-members would be provided with a death benefit, and proceedings from the benefit could be used to meet the outstanding debts and other financial obligations.
It doesn’t make sense to purchase a term policy at the age of 60 in the following circumstances:
- If the individual is not working after 60 years.
- If the children and spouse are financially independent.
- If one has access to pension funds, or other sources of income.
As premiums for term life insurance plans become expensive at the age of 60, one must carefully weigh the pros and cons before purchasing the policy. The best option is to purchase a term policy while one is still young.