India: How owning life insurance at an early age can add significant value to financial planning

| 29 Aug 2023

Although the Indian life insurance industry is witnessing a surge in awareness, it still struggles with low penetration and unawareness regarding the benefits of life insurance when taken at a young age. Financial Express lists seven reasons for why taking up insurance at a young age is a good idea.

  1. Lower premiums

One of the most compelling reasons to consider life insurance at a young age is the advantage of lower premiums. Insurance premiums are calculated on basis factors like age, health, and risk factors. By starting early, individuals can secure policies with lower premiums, which results in significant long-term savings. Locking in a low premium early in life ensures that the cost of coverage remains affordable throughout the policy’s duration.


  1. Financial security for dependents

Life insurance provides a safety net for dependents in the unfortunate event of the policyholder’s untimely demise. Owning life insurance at a young age lets individuals protect their loved ones from financial uncertainties. Life insurance can support dependents by providing funds to cover outstanding debts, education expenses, or day-to-day living costs. It offers peace of mind knowing the financial future of loved ones is secured.


  1. Accumulation of cash value

Some life insurance policies offer a cash value component that grows over time. This cash value can be accessed or borrowed against during the policyholder’s lifetime. By starting a life insurance policy early, individuals have a longer time horizon to accumulate a substantial cash value. This amount helps fulfil various financial goals, such as funding higher education, purchasing a home, or supplementing retirement income.


  1. Long-term savings and investment

Life insurance policies can serve as effective long-term investment instruments. In addition to providing protection, they offer opportunities for wealth creation. By starting a life insurance policy at a young age, individuals can benefit from the power of compounding over a long period of time. These policies often include investment components that allow policyholders to allocate a portion of their premiums towards investments, potentially yielding higher returns over time.


  1. Guaranteed compounding growth

The power of compounding is a well-known phenomenon, and the younger you start investing, the bigger your corpus can become. What is not known is that higher risk doesn’t always equate to higher rewards. This is backed by the SEBI study which shows that 90% participating in Equity F&O markets, the most sought-after investing option for the youth population (75%+ F&O investors are in the age group of 20-40), out of which, 75% of those making losses are under 40.


While it is important to take risks and make profits, it is equally important to have a balance in the portfolio. Invest in a savings/ income insurance plan to get the double benefit of compounding growth of wealth and a guaranteed return at minimal to no risk. A financial plan not accounting for unpredictable events is an incomplete plan.


  1. Tax benefits

As per the old tax regime, under section 80C an individual can avail of tax exemption of up to INR150,000. While ELSS and PPF are the most popular options of tax saver investments, life insurance can be a lucrative alternative, helping one with the much-needed security and income growth while also allowing them to enjoy the benefit of tax exemption.


  1. Balance in investment portfolio

Including life insurance in an investment portfolio creates a balanced approach that safeguards your loved ones, mitigates risk, and ensures financial stability, thereby enhancing the overall resilience and long-term growth potential of investments.