Now a days, term insurance plans, which offer coverage up to 99/100 years, have become extremely popular among people. However, the sudden increase in popularity of such plans is only a result of aggressive marketing done by insurance companies and web aggregators.
I have been seeing one such advertisement on my Facebook news feed for a long time. Here is how the advertisement goes.
“Leave the legacy for your child. Buy term insurance cover of 1 Crore at just Rs. 2000/- per month for 99/100 years.”
Apparently, this is exactly how different companies and web aggregators promote their schemes aggressively.
Moreover, the point that grabbed my attention was the life-expectancy of India, which is yet not 99/100 years. Then, why insurance companies are ready to pay an assured sum of 1 Crore.
You also must be thinking along the same lines. Leaving 1 Crore for your child does not seem to be a bad option, isn’t it?
First of all, let me clarify that this insurance plan isn’t as great as it looks. In fact, with such a plan, there’s no way you’re going to leave a legacy of 1 crore for your child.
Here, It is very essential to understand the time value of money. The value of 1 Crore in the present time would not be the same in the future. For example, today, you can easily buy a flat within 1 Crore. Nevertheless, the same amount of 1 Crore may not even be enough to purchase a basic car after 40-50 years.
Taking today’s trend of inflation into consideration, let’s see what will be the value of 1 Crore after 40-50 years.
|Value after 40 years||
|Value after 50 years||
Suppose your current age is 30 years and you take term insurance plan till 99/100 years for 1 crore. The value of 1 Crore would be 9.7 Lakhs after 40 years and 5.4 Lakhs after 50 years considering today`s cost. What kind of a legacy is that?
Also Read : Do not Buy Term Plan with Return of Premium
Term Insurance Plan till 99/100 Years – Do No Buy
Now that you know that such plans cannot promise any legacy for your child, let’s proceed further. Here are some calculations to ascertain- Why term insurance plan till 99/100 years is not beneficial ?
Assuming that you’re 30-year old and want to buy a sum assured of 1 Crore, there can be 2 options.
- Term Insurance till the age of 60 i.e. your retirement age
- Term Insurance till the age of 99/100 years
Now let us compare the premium of both.
I am taking the example of Aegon term plan which offers cover up to 60 and 99 years.
1st case: Premium for 30 years i.e. till age 60 years (Term – 30 Years) – Rs. 652/- monthly
2nd case: Premium for 99 years i.e. whole life – Rs. 1286/- monthly
The difference in Premium – Rs. 634 per month
To make it easier to understand, let us consider 2 distinct scenarios here:
- Death before the age of 60
- The person survives beyond 60 years
Scenario I – Death Before The Age Of 60
If a person takes term insurance for 99/100 years and death occurs before the age of 60, he will undoubtedly lose some money.
Furthermore, suppose a person dies at the age of 55. As a result, he’ll lose an additional premium of 634/- per month i.e. 1.9 Lakhs in 25 years if he takes the term insurance plan till age 99/100 years.
Scenario II – Survival Beyond 60 Years
What would happen if a person survives beyond 60 years and invests 634/- per month? Would he still gain if he lives till the age of 75/80/85 years?
Let us assume that a person lives till 75 and invests 634/- per month. At the age of 75, the value would be around 1.27 Crore at 12% returns.
Investment of 634/- per month would generate a corpus of 22 lakhs at the age of 60? If the person invests the same amount for another 15 years (till age 75), it’s value would be around 1.21 Crore assuming a CAGR of 12%
Moreover, the person would be paying a premium of Rs. 1286/- after the age of 60. Hence, it would add an additional corpus of around 7 Lakhs.
So, the total amount would be 1.28 Crores, which is more than the ‘1 crore sum assured’ you’ve opted for.
What If You Live Till Age 85?
Taking the same assumption as above, the corpus at age 85 would be around 4 crores. Seemingly, it’s 3 Crore more than the sum assured you have opted for.
Trust me, today’s life-expectancy is 85 and it’ll definitely increase with advancements in new life-saving technologies.
Yes, there is some profit involved if a person dies in between the age of 60-72. But then the insurance is for security and not profitability and you’ll have to ensure that you don’t live beyond this age.
Then, up to what age should I take term insurance cover?
The ideal age is 60 years, i.e. retirement age. On the other hand, if you plan to work beyond 60, then you can opt for that age.
However, if you’re able to generate the required assets prior to the retirement age, just drop the term policy.
Within the same plan, there’s another option where you’ve to pay till age 60 for cover up to 99/100 years. As of now, I haven’t gone through the plan but will definitely update you once I study the plan.
Conclusion – 99 Year Term Insurance
Now, that you’re familiar with how insurance companies indulge in aggressive marketing to sell their plans, the conclusion is very simple.
Don’t buy Term Insurance plan till age 99/100 years on the grounds that it’ll serve as a legacy for your children. The reason being that this amount of 1 Crore will become peanuts after 40/50 years. Besides that, the money can be used only by your nominee only and you’d never be able to use the money.
Whereas, if you invest the additional amount in mutual funds and survive beyond 60, the money would be in your hands.