Is Life Insurance very expensive?

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No, Not exactly. In fact it’s one of the cheapest products available in the Insurance business.

Life insurance truly costs less than Car insurance or health insurance of the same value. Now you know, you are more valuable than the Car you drive in. But you pay less for your life than for the Car.

Over a period of time, Life Insurance premium rates have fallen dramatically due to several factors. Competition has driven the prices down. Improvement in medical sciences has pushed the death rate down. Change in the distribution models –from agents selling insurance to online platforms comparing the products, have brought in transparency and fall in prices.

Life insurance in a way is dirt cheap. You can buy a million rupees policy for less than Rs.15 a day, if you are young and having good health.

But life insurance can prove to be expensive if you are old or having health problems. The premium rates could steeply go up if you choose to buy life insurance later in life. Why is this so?

All life insurance plans are for longer term of usually over 5 years. If you buy a long term life insurance of say for 25 years, when you are 30 years old-the total premium you would pay in the entire 25 years, is far less than in the case, when you choose to buy same plan 10 years later, when you reach 40.

Worse, even if you take only 15 year plan to cover you from age 40-55, the total premium you’d pay on your shorter Plan of 15 years is likely to be higher than the total premium you’d pay for a longer plan for 25 years. In both the cases, your life insurance ends when you reach age 55. But in the second instance, you have no insurance for the first 10 years from Age 30 to 40 and then you end up paying a total sum higher than what you would have paid when you’re younger at 30. Why?

Well, the Insurance Companies think that when you’re going for insurance at age 40, there could be an element of additional unknown risk they are taking in than when they are insuring you at age 30. That’s why they charge you disproportionately high for people who buy insurance later in their lives than those who buy earlier.

This is also one way to discourage people thinking of insurance when they are already old and risky from a health point of view.

But you may ask, as Life Insurance premiums are falling over period of time and also there is a “time value for money” when you start paying premiums before, wont’ you benefit financially if you game the system by taking insurance just in time when you’d hit the sweet spot of cost savings by taking a policy only later in life?

If you do that, you are ignoring one key factor. When you’re younger, your financial commitments to your family are heavier. You might be having very young children and you might not be having that much of accumulated savings to save your family against poverty if something happens to you and you are not insured. This risk gets gradually lesser as your children start growing and you have assets to back them up in case of a mishap.

Recommendation: In younger ages, you have a higher need for life insurance and you pay less too.

Take life insurance as early as possible