Jagoinvestor

April 22, 2013

5 reasons why you should not take Term insurance till 75 yrs !

Got a term plan for your family? Or may be you’re planning to take the term plan in a few days. If you are, good for you! . One of the biggest questions, every person considering term insurance has, is – “Should I take the cover for the maximum period?” . This is exactly what Chetan also asked on our questions and answers forum

Aegon provides coverage upto 75 years of age. or 20 25 30 35 40 years. I am confused which policy term is better to get maximum benefits?

Just like him, hundreds of investors have asked me this question over and over again, and I tell them, “Just take it only until you reach 60 years of age.”

And they happily ignore my suggestion; as if I am crazy, suggesting this to them. The “Insurance only till 60 years” looks kooky to them – kind of a “wrong deal” and they want to get “maximum benefit” out of the term plan. “The chances of my family receiving the  claim amount is higher when I am covered for long” is the common thought process of every person who is in the mad rush of buying the highest possible tenure.

term insurance plan for higher tenure

Trust me, that’s flawed thinking and I will explain why today. More than a sermon, think of this article as a discussion, where I put some points in front of you and you reflect and ask yourself – “Does it really make sense? or not?” and then make your own decision. So here are those 5 reasons on – why you should not take Insurance till the age of 75 years or more

1. You don’t need it beyond your working life

You really need to ask yourself the question – “Why am I taking Life Insurance?” and the answer is – “Because right now, I don’t have enough net worth, which will help my family if I am gone” or in other words – “Because my family is financially dependent on me.”

For a person who is not earning and does not bring money home, his death will cause family only emotional loss; not financial loss. Hence, logically you need to cover yourself through a life insurance product, only for the time you are working and others are financially dependent on you.

2. You will have “probably” have enough wealth by the time you retire anyway

Stretching the 1st point, if you are taking life insurance cover until you are 70-75 years, will you really need it at that time? Do you really feel that you will have any reason to have a cover of 1 crore that time (after 30-40 years?) . I am sure (more confident than you), that you would have completed all your financial goals by that time, you will have your own home by that time and you will have done everything in your life by that time. You focus area at that old age will be very different than what you focus on right now.

To understand this point, you have to stop for a moment and go into 2040-50; when you are retired and close to the heaven’s door. Are your children really financially dependent on your income – which does not exist? Is your spouse dependent on your income? You must have already accumulated enough wealth by that time and you must be getting some income out of that. Your death has nothing to do with family cash flows at the time.

3. The premium factors in your tenure already

Most of the people who feel that they are smart enough to take term plan till 75 years, forget that on the other side is a professional business running for decades now. They have hired people who are 10 times smarter, who design products (they are called Actuaries) that generate large profits for companies and not investors. Life Insurance is a “for-profit” business. They design things, so that they earn profit. If a company allows you to take a plan that lasts until you turn 75, why have they done that? Why did they allow that to happen? The premiums they charge already factor in everything. You pay premiums to get that term plan, it does not come free!

4. You will live longer – and they already know that.

Like I said in my last point, companies are “for-profit” businesses. They will not issue you a policy if your chances of living beyond 75 is not high. If you are a healthy person, already earning well, have access to good health care, what are the chances you will live beyond 75 years of age? Extremely high, that’s what!

Look around you – Are people dying early on average? No, you see people living beyond 80-85 already and here we are talking about your future which is 30-40 years away, when the average life expectancy of an average person in India would be closer to 73-76 years anyway (as per projections by govt studies.)

Now just imagine this … Compared to the 1.25 billion people in our country, are you in top 25% or lower?

Which means that you have much much better prospects to live beyond 80-85 years.  Which brings me to another point, that you should seriously worry about about your retirement planning a lot more than the less important question of insurance beyond 70-75 years.

Even when we do financial planning for our clients, we make sure that we plan for their retirement beyond 85 years and have them covered only till 60 yrs or even lower if they feel they will retire earlier. The important point to understand here is that, a life insurance coverage is just a support for your family in your early life when you are making money, your financial replacement, if you will. So when a life insurance company issues you a term plan until 75 years, it’s not you who are smart, but the company! They know, with a really high degree of probability, you will keep paying the premiums till 75 years.

It’s all chance. Yes, there will be people who will die before they reach 75 years of age and yes, their family will get a lot of money, but it really is just the game of chances … Companies make profits because of those who will live beyond 75 years and not by those who die before that.

5. The value of your sum assured is peanuts later

I hear it most of the time – “I am taking the term plan till 75 years, so that even if I die, my family will get the money. So, the higher the tenure, higher the chances of making money.” But they forget that by doing so, they are actually helping the insurance guys make profit, but lets say you die at 70 years. Celebrations! Your family will get that 1 crore, which at this moment sounds good, but will not be worth a lot that time.

Let me show you the mirror that lets you look into the future 🙂

Let’s say you are a 30 year old guy, and your monthly expenses are 40k per month. You say to yourself, “Let me take that term plan worth 1 crore so that in case, I die my family can get 1 crore which will provide them some good monthly income.”

It would be very good number if you die early in your life! . With each passing year that 1 crore will be worth less. If you die the next year of taking the term plan, the worth of that 1 crore is pretty much same, 1 crore. But if you die after 10 yrs, that 1 crore will be worth 50 lacs in today’s world. So getting 1 crore after 10 yrs is same as getting 50 lacs right now. Are you getting my point? The money you get in term plan is a constant number, not linked to inflation!

So imagine you have taken the term plan till 75 years and you die at 70 (after 40 yrs of taking the term plan), what is the worth of that same 1 crore at that time? Hold your breath! It’ll not more than 6-7 lacs assuming a inflation of 7% and even if inflation for next 40 yrs is a small 5%, it would not be worth 15 lacs today! . So when your family gets that 1 crore after 40 yrs, it’s kind of worthless. No one would be depending on that money anyway; it’s just a bonus on your children’s inheritance money!

Act like a real informed and smart investor

I have been seeing this madness for many months now and was constantly wondering why people are focusing so much on this small thing called “long tenure” in the term plan. I see investors abandoning one insurance company for another just because the other company is offering a term plan till 75 years.

You are allowing yourself to fall into a trap if you do this. If you have already taken the term plan till 75 years, do not worry … do not cancel it, just let it run it’s course. Stop paying premiums when you feel that your family can be taken care of, by the wealth you have generated. If you are planning to take a term plan right now, take it for as long as it takes you to retire, probably till 55 to 60 years, but not beyond that.

Would be happy to hear your thoughts and your views on this topic! . You have taken the term plan for very high tenure ! .

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190 Comments
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Sachin Ahirwar
Sachin Ahirwar
1 year ago

I appreciate your article on why one should not take term insurance till 75 years. However, I would like to respectfully disagree. As someone who has witnessed firsthand the difficulties faced by seniors without sufficient insurance coverage, I believe that it’s essential to consider term insurance even in your later years. While it may require some extra effort to find a suitable policy, the peace of mind it brings is priceless.

Tsetan
Tsetan
2 years ago

Thank you so much for such a golden piece of advice.

JS
JS
2 years ago

Very nice article. Cleared up my confusion right when I was about to take a second term insurance plan.

Roshan Jaiswal
Roshan Jaiswal
3 years ago

What a fantastic article. It is helpful for me to take my decision. Thank you.

Sushil
Sushil
Reply to  Jagoinvestor
3 years ago

Excellent. I was just buying a term insurance and was confused as my smart boss has taken a life coverage upto 90 yrs. After reading ur article i hv decided to go upto 60 yrs. I am 44 now. Thanks

Jitender
Jitender
Reply to  Roshan Jaiswal
3 years ago

Helped alot to choose right term plan . Thanks.

Jay
Jay
Reply to  Roshan Jaiswal
3 years ago

I don’t think So this is explaining well. This may be good for those who are working continuously and already financially settled peoples or families. But in next 30 or 40 years, you cannot predict the future, for this I categories people into 2 ways, 1), Who is matured enough to run their life with respect to time, 2), Who is not matured enough to run their life with respect to time 3), Who is trying to mature or balance their life with respect to time.

Money is required for Type 2 and Type 3 category people or families., because they are not settled yet and trying to settle. So in my opinion, going for 70 to 80 years is not a wrong step. But going to 100 years may be exactly wrong. Because the normal life span of Indian is 60 to 80 years.

Case 2). By the way, you are not paying premium less every year. It is hard core money. The difference between premium paid upto 80 years from 60 years, also can be manageable, so that it will give you financial freedom after your legacy.
Like this i can tell many scenarios.

Md Azhar
Md Azhar
3 years ago

Excellent Article, Thanks for sharing the valuable advice.

Pavan
Pavan
4 years ago

Thanks Manish for sharing this article! I landed on this page right before I wanted to CANCEL my 60yrs term plan FOR NEW 85yr term plan! You saved me 🙂

Sreenivas
Sreenivas
7 years ago

Nice article. I never thought of this kind of thinking. But anyhow my term insurance I have set is to till the age I reach 60.

Christine
Christine
7 years ago

I have term life on my husband till he is 80, if he is alive at 80. Does the insurance company pay the amount of the policy .

INDRAJIT SENGUPTA
INDRAJIT SENGUPTA
7 years ago

Manish and others, im 43, working for a pvt firm, having my daughter of 4 years nearing, wife housewife. Now, if I insure till 60 it costs me less than insuring till 80. ( considering a Tata AIA plan which covers till 80 ).

If i save tge differential by taking it till 60 , and i invest it anywhere- equity, mf or debt, I gain some money.

What if I die at 61? My nominee does not get the term money and my savings are not so high.

But a death at 61 will be good for my nominee if I’m covered till max tenure.

More the tenure, more premium load but more risk covered as chances of death increases and so is the money for nominee.

If situation permits, one contiues to pay. If not, one stops to pay.

But it gives the space to feep safe for the nominee.

What do you all say?

KESHAV MURTHY
KESHAV MURTHY
7 years ago

Is The term Insurance option can be used for Bank Housing loan security purpose…..?

In SBI bank they are insisting loan protection insurance plan for taking home loan transfer….

pl. guide me in this regard…and which is the best loan protection insurance plan….?

Thank you…

Mehul Parekh
Mehul Parekh
7 years ago

My DOB is 6/12/1974. I want to buy a term plan for 23 yrs. in ICICI prudential. What is the premium Amt.? Should I buy? My Term is correct or not? I want to retire at 65yrs. Currently I have completed 41yrs. I am confused that which term is proper for me. I want to buy this product for hedgingpurpose because I sold material to my customers on credit basis. please give me reply in detail as earliest. Thanks.

Sameer
Sameer
7 years ago

I beg to differ. For me having maximum possible term is very important. The fact is after the age of 60, body organs tend to slow down giving rise to different diseases. You might have to undergo hospital treatments more often. Even if you have sufficient health insurance, the reimbursement may not be 100% in every case. Now, if a person who underwent frequent hospitalisation dies but has term insurance cover, the amount reimbursed could help recover hospitalisation cost upto certain extent, at the very least. However, without any longer term policy (say till 75 years) for term insurance, his family will have to bear hospitalisation cost for that person even though he is not contributing to family income. This might cause clashes in family thereby evoking strong reactions after his death. Someone may question the logic behind spending money on a person who has become “liability” on the family than spending on “asset”. I agree with Captain America. But thanks to you as well for throwing light on some of the most unknown yet crucial points relating to term insurance.

Rightthinking
Rightthinking
Reply to  Sameer
7 years ago

Still term plan beyond an economic life has no value since insurance is to protect the loss of income. Better to take a good health plan and all expenses for terminal illness after death can be paid from the assets one leaves behind withou burdening the children. Net net it is foolish to insure oneself when protection from loss has no meaning…like paying car insurance even after it is junked.

Lokesh
Lokesh
7 years ago

Nice article manish, never thought in such a way, although argument given by captain america was also strong enough, but thanks for your prospective. As i am very much clear and taking the insurance for a smaller term.

Krishna
Krishna
7 years ago

Hi Manish,
Nice article. Just what i needed since I was planning to buy TERM insurance.

One question is if you are suggesting to take TERM insurance till 55 or 60 yrs. Why not I do it in parts – I take a TERM insurance policy for only 10 years now and take an other one after 10 years (for again a tenure of 10 years) and so on until i am 55 or 60.

I feel that the advantages are
1. Pay less premium initially because of Age and Tenure
2. Have freedom to opt for a new TERM insurance every 10 years for higher or lower amount next time (considering my financial condition, inflation and insurance company).
3. I agree that If I am 50 yrs and still taking a 10 yrs policy again i may need to pay hefty premium may look like a drawback but by that time but my income would have also increased proportionally by then.

Please advise.

vaibhav
vaibhav
7 years ago

very useful article..

I am looking to purchase mutuful funds
Can you please help ?

Bujji
Bujji
8 years ago

Hai ,sir. Nice article. ,I want to buy TROP policy. Could u help me??

CaptainAmerica
CaptainAmerica
8 years ago

Nice argument.
Here is what I think.

Eg plan – Aegon iTerm – SA 1Cr, Term – till 60 or 75 age. (I am 25 now, so 35 yrs term or 50 yrs term). Premium – 7300 (35 yrs term) or 8000/- (50 yrs term)

I have a compound interest table in excel for calculations. (rate 10%)

***I want to buy term plan in any case, atleast till age 60. ***
So with 7300/-, till 60 age (35 yrs term), 7300/- grows to 21,76,326 (21.7 Lac) in 35 yrs.
Case A – If I die before 60, – 1 cr. to my family – Good (1 Cr >> 21.7 Lac)
Case B – If I don’t die by 60 – Loss of 21.7 Lac. But can’t really say this as loss, siince I want protection till 60 anyway. So this 21.7 lac is just a cost of that protection.

Now I want to buy term plan till age 75. So with 8000/-, till 75 age (50 yrs term), 8000/- grows to 102,42,395 (1 Cr. approx) in 50 yrs.

Case A – If I die before 75, – 1 cr. to my family – OK (1 Cr = 1 Cr.) No profit/Loss.

Case B – If I don’t die by 75 – Loss of 1 Cr.? I thought like this.
1 Cr. is only when I had not bought any term plan at all and only invested 8000/- each yr.
But since I already said I will buy a term plan atleast till 60, my loss won’t be 1 Cr, it will be less than 1 Cr. Actual Loss = 2,79,598 (8000/- growing at 10% for the extra 15 yrs from 60 to 75)

Your article was good though and it got me thinking like “If I buy term till 75 age or more, I will end up paying premium of more than 1Cr (considering money growth), until I though as mentioned above.
Please let me know about any flaw in my thinking, I was just trying to understand the concepts.

PravinJain
PravinJain
Reply to  CaptainAmerica
8 years ago

Well, all along it is assumed that it is children who needs financial protection in case of my death. What about my spouse who is not earning. Suppose I die at 75 yrs, How she will survive if there is no other income source?

CaptainAmerica
CaptainAmerica
8 years ago

In the future, just like 1Cr is like peanuts, then an yearly premium of 7500 is also peanuts (say equivalent to Rs 300 (e.g.) of today). So, after 60 yrs age, you’ll need to pay very less money (7500 (equivalent to Rs 300-400 of today)) to continue your cover of 1 Cr. After 60, probability of dying increases because of different diseases (kidney failure, brain hemorrhage) which nowadays happens to even healthy looking people.

I think, having a choice of 75 yrs or say 70 yrs is good, if at age 60 you think you will survive beyond 75, stop paying the premium and let the term terminate. Invest those 7500 each year after 60 age in 10% investments such as FD and you’ll get 2.62 lakh compound interest at 75 age. If you think you are now too old and weak at 60 age and likely to die before 75, let the policy continue by paying each yr. 7500 (very cheap in the future), and chances are you’ll give your children 1 cr. after you die. Inheritance money!!! Don’t you think having a choice of longer term like this eg. is good? 75 age term gives you a choice in the future. Can’t predict right now what my health will be at 60. Just saying. Please explain.

I am supposing that 7500 per year won’t much help for my post retirement planning, since value of 7500 is less in future.
Just my thoughts. Please reply and let me understand more because I am confused betn 75 term and 60 yr term.

anitha
anitha
8 years ago

fantastic article manish..

hitesh
hitesh
8 years ago

Hi Manish ,

I am planning to take term plan for my father who is 58 years old and still working. Is it a good option ? Kindly suggest. Our family is not completely dependent on his income . If you are saying No, then please let me know the reason for your No ?