Longer-maturity plans insure you till you're 100, but find out if the extra premium that you have to shell out is worth it
Until recently, those wishing to buy insurance at a later stage in life had to grapple with some common problems – the cap on the age of entry and also the policy tenure. Barring a few products, most were designed with the younger population in mind. Assuming that they would need cover only till retirement, most policies offer a maximum tenure of about 30-35 years. In the last few months, however, some life and non-life insurance companies have started promoting plans that extend life-long coverage or at least till the policyholder turns 99 or 100.
IDBI Federal and Tata-AIG Life are two companies that introduced plans with longer maturities recently.
A health insurance that offers cover for a longer term is understandable, since it offers comfort at a time when health concerns and health costs are mounting. However, the logic behind life insurance with longer maturities is not very clear.
After all, isn't life insurance meant to replace the policyholder's income and aid his dependants financially, in the event of his or her demise? That's always been the fundamental premise – if you do not have to provide for those who are financially dependent on you, you do not need the protection cover.
However, pure term covers, which fulfil the objective of protection, are rather under-sold, owing to a combination of factors — higher incentives for agents in pushing insurance-cum-investment plans and also reluctance on the part of insurance-seekers to 'spend' on a product that promises no return as such. That explains why Ulips and endowment plans are popular. So, can longer maturity life products also serve any purpose?
THE LIFE INSURERS' STANCE
Insurers say that longer-tenure products, particularly term plans, are intended to meet the hitherto unrecognised need of those who are past their earning years. Their argument is: it's never too late to buy life insurance. "With a large number of nuclear families emerging, and the rising life expectancy and cases of lifestyle diseases, there is the possibility of a large number of people nearing retirement with inadequate life insurance to support their spouse after their demise. While launching its term plan for senior citizens. The plan is designed to secure the next of kin so that they are not left dependent on the next generation. Parents should aim to become self-reliant when their children start a family of their own.
EVALUATE THE MERITS
The need for such plans depends on your circumstances and what the product has to offer. Such plans may be purchased for certain specific situations. For instance, the life assured might be purchasing the policy purely as a part of his estate planning (the sum assured on death would be made available for heirs along with other distributable assets) or for the benefit of a handicapped dependant for whom the sum assured may be needed to be held in trust.
Then, there could be those who desire an income even after their working years. One of the insecurities people labour under is that they will not get regular income after retirement. That is why pension plans are such a hit. On the face of it, these things seem attractive, but the effective returns these policies offer are pretty low — 5-6%. Pension policies from various companies also fall in this category. Such plans will also work for those who have commitments beyond their retired years and continue to pursue employment well beyond their superannuation due to financial compulsions.
Longer-tenure term plans may help those taking an insurance policy very late in life, when they are past the maximum entry age for other policies. In such policies, the premium, however, will be very high. This apart, you need to assess whether the sum assured attached to the product is sufficient to meet your requirements.
Also, you need to take into account the fact that the features of all longer-tenure plans are not similar. A term plan and a Ulip could serve different needs. The need for a protection plan after your retirement is limited. However, a term plan bought at an early age that covers you up to the age of 70 or 75 years can be fairly competitive since you lock in a low annual premium.
At the same time, whole-of-life plans that have a savings component, and thus a cash value associated with them, can be a useful tool for your longer-term estate or inheritance planning. It is important to understand the differences between the two and the underlying needs they fulfil when evaluating these plans.
ASCERTAIN THE NEED
Life plans with longer tenures/ maturity periods are niche products designed to fulfil specific needs of policyholders. Therefore, they are not a must-have for every individual.
A policy purely for protecting the sole income-earning capacity of the individual may prove to be expensive as the individual's age advances. In such a case, it would be advisable for individuals to weigh the options and see what works best for them in terms of the cost for income protection, for example, the likelihood of dependants beginning to earn their own income, the cost of insuring life for a short term vis-a-vis benefits, etc. Also, a health insurance plan may prove to be more essential than a pure term plan in such situations.
Servicing an insurance policy post retirement, thus, makes little sense. If the cover continues beyond this point, one is unnecessarily paying a premium for no real benefit. Even if the premium stops before retirement and the cover continues for life, one would have anyway paid the premium for coverage for entire life.
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