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Should you buy Life Insurance if you are single

Life Insurance

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Life Insurance article in Advisorkhoj - Should you buy Life Insurance if you are single
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There is a perception among some people that if you are single you do not need life insurance. On the face of it, the logic seems to make sense. Since single people do not have spouse and children to provide for in the event of an untimely death, life insurance seems to be an unnecessary expenditure. However, there are several reasons why single people should also buy life insurance.

  • While single people do not have spouse and children to take care of, there may be other family members who may be financially impacted by an unfortunate death. The question is not whether you are "single". The operative phrase is "whether you have dependents". If you have family members like parents and siblings who are financially dependent on you, then you should buy life insurance. A large part of choosing a life insurance policy is determining how much money your dependents will need. Your cover or sum assured should cover your debt, provide for the income needs of your dependents and meet their future obligations in the event of an untimely death (you can read more in our article, How much life insurance is adequate).

  • If your parents are not dependent on you at present, but if they will retire in the near future and be financially dependent you after retirement, then you should buy life insurance. The same consideration as above will apply to how much cover or sum assured you should buy.

  • Your parents may not be financially dependent on you, but they may have co-signed or taken loans for you. For example, your parents may have co-signed your educational loan and expecting you to pay the loan after you start working. In the event of your untimely death, your parents will be liable for the outstanding loan. In such cases, you should buy life insurance. Similarly if you have co-signed a home loan with your parents, you should get life insurance. If your parents are not financially dependent on you to meet their regular living expenses, you can buy a smaller cover, but it should at least be enough to pay the outstanding loan balance in full.

  • Life insurance premium is considerably cheaper when you are young. If you plan to get married and start a family in the future, you should evaluate if it is beneficial to buy life insurance earlier to avail of cheaper premiums. The trade off is between the premiums you pay in the years when you do not have dependents and the overall savings over the term of the life insurance policy. Let us understand with the help of an example of Sachin, a 25 year old non smoker. He plans to get married when he is 32 and will need a cover 50 lacs for 25 years. For the purpose illustration we have chosen the HDFC Click 2 Protect term plan as his life insurance policy. The premium for a sum assured of 50 lacs in HDFC Click 2 Protect term plan for a 25 year old is around 4,900 while the premium for the same sum assured for a 32 year old is around 7,400. If Sachin buys the life insurance policy when he is 32, over a 25 year term he will pay a total premium of 1.85 lacs. If he buys the policy when he is 25, he will have to pay the premium for 7 additional years when he has no dependents but the over the term of the policy he will pay a total premium of 1.57 lacs. There over the term of the policy, Sachin will save over 28,000 if he buys the policy when he is younger even if he does need life insurance for a few years.

  • If you plan to leave an estate to a loved one or to a charitable trust, then you should buy life insurance so that you can support your nominee in some way, even if there is an untimely death. If you want to support college education or weddings of younger siblings, nephews and nieces, buying life insurance to cover such expenses will enable them to get your support even in the event of an unfortunate death.

Key Considerations

So far we have discussed various reasons for why you need life insurance, even when you are single. When you buy life insurance, you should ensure that the sum assured is adequate to meet the needs of your nominees. When assessing the needs of your nominees you should always consider the future needs and factor in inflation. Further, if you have bought life insurance when you are single, you should re-evaluate the sum assured once you are married and have children. It is always more beneficial to choose term insurance plans instead of insurance cum savings plans like endowment and money back plans. Term plans provide you much more cover at a much lesser cost, leaving you with a much larger investible surplus for your other financial goals, as explained in our article, Taking term plan can be a smart Insurance choice. Finally, you should make sure that you select an insurance company which has a good claims settlement track record (please read our article, Choosing the best term insurance plan in 2014).

Conclusion

In this article, we have discussed whether single people should buy life insurance. Even if you are single, you should evaluate for yourself or discuss with your financial advisor, if you need life insurance. You should also consult with your financial advisor to choose the right life insurance plan for you.

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Dwaipayan Bose

An alumnus of IIM Ahmedabad, Dwaipayan is a Finance and Consulting professional, with 13 years of management experience, mostly in MNCs like American Express and Ameriprise Financial, both in India and the US. In his last role, he was the Chief Financial Officer of American Express Global Business Services in India. His key interests are building best in class organizations, corporate governance and talent development

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