When is the right time to buy life insurance?

January 15, 2021

The year 2020 remained extraordinary for the entire world in all the senses. Covid-19 pandemic changed our lives in many ways. From venturing out for trips on holidays to staying confined in the safe walls of our home, from working at the office to working from home, from school playgrounds to online schooling on handheld devices; the year witnessed a sea of changes. And the changes were not limited to material things. Uncertain times also changed the way we think, plan, and act. We started acknowledging the risks in our lives and worked towards providing for their mitigation. ‘What if I am not there tomorrow?’ is the question which became prominent in our minds during these uncertain times. According to a study conducted by LIMRA and Boston Consultancy Group (BCG), COVID-19 has increased consumers’ awareness about the importance of having life insurance coverage. Between March 2020 and July 2020, the number of Americans saying they felt a heightened need for life insurance increased from 49% to 58%, according to LIMRA research. The study showed that a third of consumers (32%) who began shopping for life insurance were prompted by the pandemic. During this study, nearly 4,000 Americans were surveyed between July and August 2020, to identify how COVID-19 affected consumers’ perceptions and behaviour when purchasing life insurance. But do we really have to wait for a pandemic to realize the importance of life insurance? Do we have to see our friends struggling with their financial situation after having lost their loved one, to prompt our decision of buying a life insurance policy? The answer is ‘No’. Out of all the costs we bear in life, the cost of delay is the most significant one; especially when it is concerned with our financial decisions. So when is the right time to buy life insurance? Let us get an answer to this important question in a stepwise manner.

man playing with toddler

Do I need a Life Insurance Policy?

If you have someone in your life who is dependent on you for their financial well being, then, in all probability, you need a life insurance policy. Let us understand this with the help of examples:

  • If you are a parent, then you may have to ensure that your child’s education needs will be taken care of, in case of your untimely demise
  • If you are someone’s spouse and they are financially dependent on you for managing household expenses, childcare expenses or they have co-signed for a mortgage along with you, then you should be ensuring that their financial wellbeing remains intact even if you are not around to provide financial support to them.
  • If you are a student, you probably do not have any financial dependents. But if you have availed of a private student loan for your higher education then you would not want to burden your co-signer with the debt, in case something happens to you.
  • If you are an entrepreneur, and you have creditors to pay then you would like to provide for a considerable sum that can be utilized to pay off creditors without putting any burden on your legal heirs.

man talking on a mobile phone

In short, your life insurance policy acts as an income replacement tool when you pass away. So let us pinpoint some of the life events which in a way mandate us to buy a life insurance policy. But before that, let us understand how life insurance fits in your financial plan.

Your Financial Plan and Life Insurance Policy

When we start earning, seldom do we understand the necessity of having a financial plan in place. Most of us do not even differentiate between savings and investments. However, the fact remains, that the sooner you start building your personal capital, the smoother your journey becomes towards achieving your financial goals. There can be various short term and long-term financial goals depending upon your lifestyle and social setup. E.g., your short-term goals may include building funds for a vacation in the upcoming year, purchase of a vehicle, marriage expenses, etc. Whereas your long-term goals may include building a retirement fund for your golden years, buying a house for the first time, providing for your child’s higher education, building a personal capital to leave a legacy, etc. Understanding your needs and accordingly chalking down your financial plan with the help of your financial advisor is the most prudent approach. But then, where does the life insurance fit in your financial plan?

When your financial goals are concerned with your family members such as your parents, spouse, partner, or children, you would want those goals to be achieved without any hindrance. And what could be the biggest possible hindrance? Not being able to support the investments associated with your goals by your income. Or in a worst-case scenario, not being around to provide the financial support to your loved ones in order to achieve these financial goals. In such a situation, your life insurance policy comes into the picture. As stated above, your life insurance policy acts as an income replacement tool when you are no longer working.

a couple sitting on a bench

Before deciding upon the type of insurance policy, its coverage amount and term length (in the case of term insurance), it is prudent to consult your financial advisor to ascertain how much insurance premium will fit in your budget. The key is to buy a policy with optimal coverage without disturbing your budget and ongoing financial commitments towards your goals. Your financial advisor can help you decide about the optimal coverage amount based on your budget for the premium. They would factor in your financial goals while arriving at the coverage amount so that those get fulfilled even if your investments towards them stop abruptly due to your untimely demise. As per the aforementioned LIMRA-BCG study, a discussion with a financial professional is still one of the top facilitators for a person acquiring a life insurance policy. And the factors that rank higher than such discussions (such as understanding cost, understanding policy terms, and finding trustworthy information) are probably addressed during a discussion with your advisor.

So, what are those key life events or financial goals which warrant protection or mitigation by way of life insurance policy?

When to buy a Life Insurance Policy?

When you start earning and you have aged parents who are dependent on you for their old age or healthcare expenses, you should consider buying a life insurance policy with coverage adequate for their expenses, in case you pass away.

When you get married or get into a relationship and if you have a partner or a spouse who is financially dependent on you, you should consider buying adequate life insurance policy coverage so that their financial health is taken care of in case of your untimely demise.

When you are expecting a child, you should be providing for the secured future of the child so that in case of your untimely death their education, higher studies are taken care of till they become financially independent.

When you are buying your 1st house and you avail yourself of a 20-30-year long mortgage, you would surely want your loved ones to continue staying in that house without facing the risk of not being able to pay off the mortgage.

When you start a business and avail debt with your family members being co-signer, you should be buying term insurance adequate to cover your liabilities so that the co-signers are not burdened with the responsibility of paying off your debt.

When you avail private student loans and have your parents as co-signers, you wouldn’t want them to pay off your student loan from their accumulated resources, in case of your sudden demise.

To sum up, when you have loved ones whose financial wellbeing may get disrupted in case of your death, you should be buying a life insurance policy with coverage adequate to fulfil the financial goals associated with them. And even if you do not have any financial dependents, you may still consider buying life insurance to cover the cost of your unexpected funeral or medical expenses which your loved ones may have to bear in case you die.

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The answer is… 'Now'

So, if you are at a point in your life where you are anticipating any of the life events mentioned above, then the right time of buying life insurance is ‘Now’. The premium of your life insurance policy depends upon your age, habits, health conditions as well as eligibility calculated by the insurance company based on your financial standings. The younger you are, the lesser are the chances of you having any health disorders and the lesser is the probability of death as per the mortality charts.So, if you are at a point in your life where you are anticipating any of the life events mentioned above, then the right time of buying life insurance is ‘Now’. The premium of your life insurance policy depends upon your age, habits, health conditions as well as eligibility calculated by the insurance company based on your financial standings. The younger you are, the lesser are the chances of you having any health disorders and the lesser is the probability of death as per the mortality charts. As a result, the premium charged by the insurance company is also lesser as compared to the premium charged when you grow a little older. By not delaying the buying of a life insurance policy, you not only save upon the insurance premium, but you also remain in a position to continue with the investments towards achieving your goals as per your financial plan. That also enables you to cover your major financial goals with an affordable life insurance coverage and protect the financial wellbeing of your loved ones when you are not around.

So, what are you waiting for? The moment is NOW!