Should you buy life insurance at a younger age to enjoy a lower premium rate?
This is the argument put forward by insurance agents to convince customers to put aside a large part of their savings towards a life insurance policy. This reasoning is flawed, as it fails to address the following key points:
a) Is the insurance necessary in the first place?
b) Is the consumer buying the right type of insurance?
c) Is the consumer paying the right price for the insurance cover?
In most cases, the answer to these questions is "no". The consumer is buying an insurance that is not needed, is buying the wrong type of insurance, and is paying a high cost for the cover.
What then, is the right type of insurance?
Life insurance is needed when a person has financial commitments, e.g. a family with dependent children, and needs to provide for their financial security in the event of premature death. A young person who is not yet married does not have this commitment. The priority is to accumulate and invest savings that may be needed in the future.
What about buying life insurance early to enjoy a lower premium rate? It depends on the type of insurance that is bought. For term insurance, which covers death from all causes, the premium rate is quite flat for people below age 55, which is the period that insurance is really needed. After that age, the consumer should have accumulated sufficient savings with a proper financial plan, and does not need to rely on insurance.
Life insurance should be used to protect against premature death, and should not be used as a form of savings and investments - unless it is able to provide a yield that is comparable to other types of investments. In most cases, the yield is terribly low!
At the younger ages, the biggest risk is premature death caused by accidents. The premium rate for an accident insurance is flat, regardless of age.
It does make sense to get a life insurance policy, especially a term insurance policy, at an early age as part of your financial plan. But, make sure you pay a premium of not more than 0.15% of the amount that is covered. For example, you should pay not more than $450 a year to insure for $300,000. If you opt for personal accident insurance, you should pay $180 to $360 depending on your occupation.
Do take your time to look for a suitable insurance cover. There is no great hurry.
This is the argument put forward by insurance agents to convince customers to put aside a large part of their savings towards a life insurance policy. This reasoning is flawed, as it fails to address the following key points:
a) Is the insurance necessary in the first place?
b) Is the consumer buying the right type of insurance?
c) Is the consumer paying the right price for the insurance cover?
In most cases, the answer to these questions is "no". The consumer is buying an insurance that is not needed, is buying the wrong type of insurance, and is paying a high cost for the cover.
What then, is the right type of insurance?
Life insurance is needed when a person has financial commitments, e.g. a family with dependent children, and needs to provide for their financial security in the event of premature death. A young person who is not yet married does not have this commitment. The priority is to accumulate and invest savings that may be needed in the future.
What about buying life insurance early to enjoy a lower premium rate? It depends on the type of insurance that is bought. For term insurance, which covers death from all causes, the premium rate is quite flat for people below age 55, which is the period that insurance is really needed. After that age, the consumer should have accumulated sufficient savings with a proper financial plan, and does not need to rely on insurance.
Life insurance should be used to protect against premature death, and should not be used as a form of savings and investments - unless it is able to provide a yield that is comparable to other types of investments. In most cases, the yield is terribly low!
At the younger ages, the biggest risk is premature death caused by accidents. The premium rate for an accident insurance is flat, regardless of age.
It does make sense to get a life insurance policy, especially a term insurance policy, at an early age as part of your financial plan. But, make sure you pay a premium of not more than 0.15% of the amount that is covered. For example, you should pay not more than $450 a year to insure for $300,000. If you opt for personal accident insurance, you should pay $180 to $360 depending on your occupation.
Do take your time to look for a suitable insurance cover. There is no great hurry.
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