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Want to Buy Insurance? Start Early!

 
 

According to a study conducted by the IRIS Knowledge Foundation and UN-Habitat, the population in the 15-34 age group is steadily rising in India. It stood at 353 million in 2001 and rose to 430 million in 2011. By 2020, India will become the youngest country in the world with almost 64% of the population falling in the working age group.

The tendency among the working youth is to live from pay check to pay check. After all, it is that time of your life when you experiment and discover. However, it is also a good idea to explore possibilities with your finances while you are in your 20's. Here are a few common thoughts that young people have, and some suggestions thereof.

But I'm too young to start saving

When it comes to investments, the earlier you start, the better. You can avail the benefits of compounding.

For example, if you invest Rs. 6,000 a month starting today, for 20 years, your corpus can grow to Rs. 34,00,000 (@8% return) and minimum returns at Rs 21,80,00 (@4% return). On the other hand, if you delay investing by just 5 years, you will have to invest Rs 10,100 a month for 15 years to reach the same corpus. In effect, the 5 year delay has cost you an additional investment of Rs 378,000. Hence, is makes sense to start early!

This is the time you would have a larger component of your income available for savings as you might not have any serious liabilities like a home loan. You are earning well and have money at your disposal. If you plan your finances well, you can create a good corpus for the various milestones in life, in fact if you start now, by the time you retire you would have built a sizable corpus.

I need to worry about savings only when I'm older

Time is a critical factor when it comes to investing. Have you heard of the term "time value of money"? A sum of money available today is worth more than the same amount in the future. This is because inflation erodes the value of money. The best way to grow your money is to invest it wisely.

What are the advantages of starting early?

If you start investing early, the power of compounding can work in your favour. Compounding refers to the re-investment of income. The following chart gives you an example of how starting investments early can work wonders with your investments.

Age at which investment startedAmount Invested per month (Rs.)Rate of InterestAmount at the age of 60 years (Rs.)
25500010%1.69 Cr.
30500010%1.03 Cr.
35500010%61.66 Lakhs

The above chart shows how just a 5 year delay in starting your investments can reduce your final corpus by Rs. 66 lakhs, while a 10 year delay can cost you 1 Crore 7 lakhs.

Apart from compounding, if you invest in protection plans early on in life, you are a lesser risk for underwriting as compared to someone who is older, and with more liabilities. Hence, you can avail the easily accessible benefits of lower premiums and higher cover amounts.

Isn't insurance for older people?

Well, this is a common misconception. In fact, you stand to gain if you invest in an insurance product early on in life. The premiums that you need to pay will be lower. Here is a comparison of the annual premiums for various ages, if you are buying a term plan with a Sum Assured of 50 lakhs for 25 years:

AgePremium Amount (Rs.)
306500
358200
4011300

The assumption is that you are a healthy male and a non-smoker.

If you are considering market-linked products, the longer you stay invested, the better it is. Time and patience will earn you rich rewards. Explore the various insurance products by Max Life and start soon. The time to start investing is NOW!

If your policy offers variable returns the illustrations will show two different rates of assumed future investment returns. These assumed rates of return shown as 4% & 8% above are not guaranteed and they are not the upper or lower limits of what you might get, as the value of your policy is dependent on a number of factors including future investment performance. The actual experience on the contract may be different from illustrated. The guaranteed and non guaranteed benefits are applicable only if all due premiums are paid.

 
 
 

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