Buying life insurance at the age of 25
Given that, the person is unmarried and without any dependent, is it advisable to buy life insurance (which is not a term insurance) at the age of 25?
Considering it as an investment tool plus a retirement plan, since after 35 years i.e. at the age of 60 it will give a lump-sum amount, is it wise decision to buy the life insurance under given conditions?
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Given you have no dependents, you technically don't need insurance. One may still go-ahead and buy an insurance if you are going to have dependents in the near future as the premium at lower age would be less than the premium at higher age for the same sum assured.
If you decide to buy insurance, TERM insurance is the best option as it costs less. The difference in the premium you can invest into similar instruments that your insurance company is investing in, and you would earn more returns always.
The reason being that what you pay to insurance company quite a bit of this goes to agents as commissions [in India its around 25% for first years, 15% second and 5% till the end] for normal endowment policy, or reitrement market linked ULIPS, there are further costs.
Read the documents carefully and you will understand the difference.
For Retirement there are pure retirement products like NPS [National Pension Fund] or PPF [Public Provident Fund] that offer the same saftey and better returns.
Life insurance companies like to sell whole life policies, as they are very lucrative for the companies, for a few reasons:
Whole life policies are combination products - a combination of investment and insurance - they are very hard for consumers to understand and very hard to compare across companies. Unlike term life - where you can easily get details across companies - whole life products are very hard to compare.
Unlike other investments, people who buy whole life tend to forget about them; they don't re-evaluate them over time to see how well they are performing, because they focus on the insurance part of the product.
I do not recommend purchasing such policies.
People buy insurance to protect oneself from a loss. Life, Health, Auto, Home insurance all protect you or your family from a big financial loss.
You want to save for a future expense, so you can buy a car or a home. For events far enough in the the future you would actually want to invest, that is why so many people use more than a bank savings account to have enough money to pay for their kids college.
You want to invest for retirement. That involves buying stocks, bonds, or other investments to be used decades from now. They may even be needed to pay for expenses for decades beyond retirement.
Why do you want to combine them into one investment fund. You said the insurance policy you want to buy is an investment tool plus a retirement plan. Each of those three things have different goals, rules, and tax implications.
Many of these non-term polices have high fees and commissions for the agent. That is why they want you to buy them. They frequently give the most optimistic view of returns during the sales pitch. You have to understand what exactly is guaranteed, and what is just a guess.
By the way if you don't have any dependents, and don't expect any in the next few months. Then the risk you are insuring is the chance that when you want to buy insurance your health will prevent you from being able to do so.
For example if you have no need at age 25, but buy a 10 year term policy anyway. At year 9 you get married, and year 9.75 you have a child. When you try to increase the amount of coverage you are rejected. You then have spent 10 years of premiums for less than a year of coverage.
Yes non-term insurance generally is permanent insurance, so you are protected from that scenario, but how much insurance do you need? It depends on your job, your spouses job, the number of kids, their ages, any disabilities they have. Today those are just a guess.
You should at least get a -15,000 plan to cover funeral costs and other expenses your parents/whoever get left with your estate in the case you die may incur in the process. If you have car payments or a mortgage, you may want to increase the plan to help with those payments until they can be sold.
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