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3 reasons you should start life insurance planning early
Life insurance is something that everyone hears about and have an idea of what it is. While people generally agree that life insurance is necessary, few people talk about it and know exactly what is covered in their insurance plans.
In this article, we give you a brief overview of life insurance and why it benefits you to get it early.
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What is life insurance?
Life insurance is a specific type of insurance policy that covers the insured person for death and disability. Often, there is also a critical illness coverage, which is an add-on.
This means that the insurance company will issue a payout if the insured person passes away, sustains a physical disability, or is diagnosed with a critical illness, as specified in the policy.
If the insured person passes on, this payout will go to his dependents. This is not meant to alleviate their grief, but rather to support their financial obligations especially if the deceased was the sole breadwinner of the household.
If the insured person is still around, the payout is meant to help with the medical bills and also provide working income relief if he is unable to work because of the disability or illness. As such, it protects not only the insured person but the whole family.
Why should you start life insurance planning early?
1. Lower premiums, longer duration of coverage
The earlier you start your life insurance policy, the lower the premiums will be. These premiums will cost the same for as long as you hold the policy.
This means that the younger you start on your life insurance, the earlier you get protected and at a cheaper rate. This applies to both term and whole life insurance plans.
Wait, what are term and whole life insurance plans? How are they different?
Term life insurance: A term plan provides insurance coverage for a specified period. The policy continues for as long as the premiums are paid, up to a specified age. The premiums are lower than a whole life insurance plan but there is no cash value when the plan ceases.
Whole life insurance: A whole life insurance plan has higher premiums but there is a cash value when the policy is surrendered. Also, it covers for the whole of life as long as the premiums are maintained, unlike the term plan that ceases at a specified age.
Premiums will be cheaper the earlier you get your life insurance, be it a term or whole life plan; the main difference is that you get coverage for life and the cash value with a whole life plan.
2. You get greater compounded value over time
This applies specifically to whole life insurance plans as we’re looking at the potential cash value you get if and when you surrender your policy. In general, the premiums you pay will be more than the surrender value at the start of the policy. In the long run, this value will grow exponentially, and you stand to get back more than what you’ve paid for in premiums.
As illustrated in the charts, when you get your whole life insurance early, there is ample time for the value of your policy to grow. In the example, the insured person who started his plan at 25 y/o will have paid a total of $97,842 in premiums and will receive $171,258 when he decides to surrender the policy at 65 y/o.
In comparison, a person who started his plan at 45 y/o will have paid a total of $93,227 in premiums and will receive $98,040 when he surrenders the policy at 65 y/o. This is the effect of compound interest, and it pays to start earlier.
*In the above examples, we refer to a whole life plan with $200,000 cover for a male, non-smoker. The surrender value assumes an illustrated yield of 4.75% per annum. They are purely illustrative and do not represent the upper and lower limits that the policy can generate.
3. You get greater financial flexibility as your commitment grows
As you grow older, you should expect more commitments like car loans, home loans, medical bills, and children’s expenses. With increased expenses, a lower insurance premium means that you can allocate your income for other purposes.
In our illustrated example, the person who planned ahead and got his insurance at 25 y/o will be paying $212/month for the whole life policy as compared to $404/month if he had started at 45 y/o. This means that he can designate that difference to other expenses, or he can even use it to pay for another life insurance policy to increase his coverage.
Starting early with life insurance means getting protection earlier and committing to a lower premium.
If you’re getting whole life insurance, it also means that the value of your policy will compound over time. Further, securing a lower premium also gives you greater financial flexibility in the long run.
Life insurance is meant to protect you and your family, and it pays to start early. Buying life insurance is NOT about anticipating the worst BUT having a carefully thought out arrangement for yourself and your loved ones.
Arrange a session with LiveLife’s Relationship Managers today to discuss and review your life plans today.
This post was written in collaboration with Sony Life Financial Advisers Pte. Ltd.
For more information, please consult one of our LiveLife’s Relationship Managers.
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