Most people are confused and not sure how to determine the investment horizon or time period while taking insurance products. So let me try to help clear such confusion.
Most people are confused and not sure how to determine the investment horizon or time period while taking insurance products. So let me try to help clear such confusion.
Things To Consider While Fixing Up The Term
- Consider whether the capital or sum insured amount
will be sufficient enough at the time of maturity. - Calculate the approximate value of the maturity amount and its worth at the time of reaping the benefits. For example, value of one Crore is different from today and a calendar date after 20 years.
- Consider your age, employment feasibility, approximate accumulated surplus or wealth.
- Consider your dependency on your family members or other member’s dependency on you.
Reasons Not To Always Go For The Maximum Life Term
Let’s discuss the point with an example. Consider you want to take a term insurance policy worth 1 Crore and right now you are 30 years of age. What will be the ideal period for the term insurance? Certain providers offer term cover up to 75 years of age and some restrict it to 60 years of age.
How To Arrive At a Conclusion?
It is always better to calculate your investment and returns for the next 20 years and not after that. Most of the people have a thought process to cover up for the maximum age so that the probability of getting maximum returns is high. However, this kind of a thinking process is entirely wrong.
Let’s say your age is 30 at present and you would like to have a cover of 1 Crore up to 60 years of age. Here is a chart that explains the value of 1 Crore after 30 years from now at an average inflate rate of 6%.
| No# of Years | Value At Each Year |
|---|---|
| 1 | 10000000 |
| 2 | 9400000 |
| 3 | 8836000 |
| 4 | 8305840 |
| 5 | 7807489.6 |
| 6 | 7339040.224 |
| 7 | 6898697.811 |
| 8 | 6484775.942 |
| 9 | 6095689.385 |
| 10 | 5729948.022 |
| 11 | 5386151.141 |
| 12 | 5062982.072 |
| 13 | 4759203.148 |
| 14 | 4473650.959 |
| 15 | 4205231.902 |
| 16 | 3952917.988 |
| 17 | 3715742.908 |
| 18 | 3492798.334 |
| 19 | 3283230.434 |
| 20 | 3086236.608 |
| 21 | 2901062.411 |
| 22 | 2726998.667 |
| 23 | 2563378.747 |
| 24 | 2409576.022 |
| 25 | 2265001.461 |
| 26 | 2129101.373 |
| 27 | 2001355.291 |
| 28 | 1881273.973 |
| 29 | 1768397.535 |
| 30 | 1662293.683 |
*Calculation based on 6% inflation
Maturity Amount Is Real Peanuts
The amount that you would get after 30 years seems to be peanuts when it is compared with the original insured amount. Do you still think that people will always have to go with the maximum life term while taking insurance products? Let it be any sort of investment method, the maturity amount should be calculated only for a maximum of 20 years.
Why Not To Go For Longer Terms?
On the other hand, the individual would have accrued much wealth in the 30 years of period and would have done with all the responsibilities. If any individual is not happy with his/her financial status, it is not advised to plan for such a long term and invest in products. Any such product should be for a maximum period of 15 years and the investment amount or pattern should be altered depending on the conditions after 15 years.
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