What Do Millennials Need to Know About Life Insurance?

Table of Content

1. When Should Millennials Buy a Life Insurance Policy?

2. What Kind of Life Insurance Should Millennials Buy?

3. How Much Life Insurance Do Millennials Need?

Nobody likes to think about how potentially long or short their life might be. Young people in their 20s hardly ever dwell on their mortality. But as you grow older and start a family, you need to give yourself a bit of a reality check. The average millennial today is around 30-years-old. Most millennials are married with kids, while others are still figuring out their adult lives. Either way, millennials have to plan for the future and purchase life insurance.

When Should Millennials Buy a Life Insurance Policy?

Most millennials are currently at a point in life where they have some financial obligations. Let’s look at when is the right time for them to purchase life insurance:

• When You’re Single

  When you’re single and have little to no liabilities, you may not think you need a life insurance policy. But, if you have any financial debt, such as a loan, you should opt for life cover. If anything happens to you, your family will have to pay off what’s pending, which might be difficult for them to do. Most millennials today are financially independent and even help relatives. If you earn enough to support your parents, siblings, or other family members, you need to buy life insurance . The payout from the policy will provide financial stability to those who rely on you and your income.

• When You’re Married

  Deciding to get married often leads to several conversations about finances and pooling resources together as you move forward. During this time, you must discuss purchasing a life insurance policy . The policy will serve two purposes. Firstly, if you or your spouse have any outstanding debt, the payout will help you clear it. Secondly, depending on the kind of life insurance policy you choose, you could invest and build up a corpus for your retirement together.

• When You Have Kids

  When you start to grow your family, you need to get yourself a good life insurance policy . Getting a policy before you have children is often better. But if you’ve put it off until now, there’s no time like the present. You should opt for a sum insured amount that is at least ten times your current annual income.

What Kind of Life Insurance Should Millennials Buy?

Now that you know when you need to purchase a life insurance policy , let’s look at what kind of plan you should buy.

• Term Insurance

  As the name suggests, this policy offers cover for a specific period. The period might be anywhere from 10 to 30 years. These policies are pure insurance products and do not offer any life insurance benefits apart from the sum insured payout. If you happen to survive the policy term, you will not receive any maturity benefit. At best, the insurer might return all your premiums to you.

• Endowment Plans

  An endowment plan is similar to term plans in that they provide cover for a fixed period. But, these plans also help you grow your money. They offer a minimum guaranteed return if you survive the policy. Endowment plans help you develop a habit of saving while also ensuring you’re putting money away for your future.

• Unit-Linked Insurance Plans (ULIPs)

  Another popular life insurance policy, ULIPs offer the dual benefit of savings and investments. The money you put into your ULIP gets divided into two parts. A small portion helps provide you with life cover. The rest of the money gets invested in market funds of your choice.

  While each plan offers benefits, most millennials will likely opt for a term insurance plan at first. These policies are most affordable, and they provide high sum insured amounts. Those who want to enjoy more life insurance benefits can opt for an endowment plan instead. The premiums will be higher than term policies, but you get to enjoy more benefits. Currently, ULIPs work best for those who have already saved up enough to start investing. If you have the kind of money required to invest in market instruments, a ULIP could be the best option for you.

How Much Life Insurance Do Millennials Need?

The kind of life cover you opt for depends on your future financial needs. Ideally, opt for a sum insured that works out to at least ten times your current annual earnings. If you have any liabilities, such as a home loan, you should add the pending debt to the sum insured amount as well. If you’d also like the payout to help fund your child’s education or your spouse’s retirement, you need to work out how much that will cost you and then decide on your life cover.

To enjoy life insurance benefits, millennials must remember to pay their premiums on time. Many policies today allow you to pick the frequency with which you’d like to pay. Additionally, all life insurance policies offer tax benefits. The premiums you pay towards the upkeep of your policy get deducted from your taxable income. And, the payout that your nominee receives is also completely tax-free!

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