When Should a Term Plan be taken?

It is always a good idea to buy a term plan early on in life. The younger the person is, the cheaper the plan will be for him or her. Also, it is a good idea to buy a term plan earlier because that would ensure the policyholder would be covered for a longer period of time. Since term plans are the cheapest types of life insurance, everyone can afford to have a term plan.

Why should a term plan be bought at an early stage in life?

Buying a term plan at an earlier stage in life is a good idea. This is mainly because of two reasons:

  1. Health – A younger person is always healthier than an older person. The premiums charged for the term plans depend greatly on the age and health of the person and so a younger, healthier person pays a lot less. As a result, buy a term plan when you are younger and healthier to save money.
  2. Saving – If you have your life covered from an early stage, you do not have to worry about a lot of things like saving money for your family members (to use in your absence) and so on. You can then invest the money you earn in other tools like property, savings bonds and so on. This will give you a longer shot at building your wealth up.

What is the earliest age at which a term plan can be bought?

Most term plans can be bought as soon as the person reaches 18 years of age. So as soon as a person becomes financially independent, which sometimes happens as early as age 21, the person should buy a term plan.

For how long should a term plan be taken?

A term plan should ideally be taken till the time the policyholder has financial responsibilities. Thus, it can again be seen that buying a term plan early on in life makes sense. Let us take a look at the example below.

25-year-old banker Kumar buys a term plan. He has a wife and a 1 year old son. He buys the term plan for 25 years as by then he expects his son to become economically independent and his financial responsibilities to end. His brother, Suresh, who is 35 years old, buys the same plan. However it doesn’t make much sense for Suresh to buy such a plan as his only daughter is already 12 years old and his financial responsibilities are expected to end in the next 15 years.

So as we can see from the example above, a term plan should be bought till the time the policyholder has dependent family members. Since the term plan doesn’t have a return component, it makes no sense to continue with the policy for a longer than required time period.