Is there a right age to buy life insurance?
No one who comes of age and lands a job can escape the inevitable – that is an insurance sales agent who comes knocking.
Looking back, I am ashamed to admit that many of my not-so-proud moments came from evading unplanned encounters with relatives and acquaintances who decided to try their hand at selling life insurance.
What can I say? I was young, not savvy with small talk, have yet to learn to say no, and truthfully, my income could barely cover the bills.
If I knew then what I know now, I would have managed those “ambush” meetings better, and might have come away with sound investments too.
NO MAGIC AGE
Is there a right age to buy life insurance? According to Melvin Esteban, wealth management executive with Insular Life Assurance Co. Ltd., there is no magic age or line in the sand when one has to officially buy insurance.
"You should buy one as soon as you become the subject of an insurable interest, and this can happen at different times for different individuals," he said.
Just what is insurable interest? When someone has an insurable interest in you, it means they will suffer financial loss in case something unexpected happens to you.
When you become the subject of insurable interest, the responsible thing to do is to buy a policy in your name because your income loss, by accident or death, will negatively impact the beneficiary you want to protect.
If there is no magic age, what other signs can help you decide to buy an insurance policy? Your changing life stage should clue you in.
1. WHEN YOU START WORKING AND BEGIN SUPPORTING YOUR ELDERLY PARENTS
Many fresh graduates are raring to land their first job so they can start contributing to the household expenses. It could be that your father is nearing retirement and as he was the sole breadwinner of the family for so long, your parents will welcome your financial support, if not anticipating it. Getting an insurance policy and naming your parents and siblings as beneficiaries is a good financial move. If you are the eldest, the insurance proceeds can potentially help your parents in their retirement age, and your siblings complete their education.
2. WHEN YOU MARRY AND YOU HAVE A SPOUSE TO PROVIDE FOR
In the case of Esteban, he bought his first life insurance policy when he got married. His wife is a small business owner so he wanted to make sure she will be well provided for, so he took out an insurance policy worth 25 times his projected annual expense.
"I wanted to make sure she will have a comfortable life if something happens to me. I estimated our annual expenses and assumed it is lower than our annual income, then multiplied it by 25," Esteban said.
While the rule of thumb is to be insured for 10 times one’s annual income or expenses, whichever is higher, Esteban rightly pointed out that low interest and high inflation rates should push this guideline to 20 times. In his case, he could afford to aim for 25 times and he did.
3. WHEN YOU HAVE CHILDREN
That bundle of joy also costs a bundle with medical expenses, diapers, clothing, among others. Children at their young age naturally have an insurable interest in their parents so this is also an ideal time to buy an insurance policy. If you already got one when you are married, it could be time to buy another one.
Esteban steadily increased coverage as his expenses grew, and especially invested in new policies when his wife gave birth to his son then a daughter.
"With a growing family, your role as the family’s breadwinner is further cemented so I would recommend expanding your insurance coverage," he said.
4. WHEN YOU HIT YOUR 30s
Assuming you did not marry in your 20s, and did not have children in your 30s, should you skip buying insurance altogether? While there is no one magic age, industry studies show 35 years old as the optimal age for most individuals to buy a life insurance. That’s because life insurance products are generally age-banded, which means that as you get older, it becomes more expensive. What’s more, as one gets older, medical conditions are more likely to develop which can also result in higher premium payments.
5. WHEN YOU HAVE ASSETS
If you’re smart with your income and start to accumulate assets, from a car to a house, an insurance policy can take care of unpaid mortgages should something unexpected happen. In case of an accident and you lose your income for the short term or long term, it’s comforting to know that your assets will remain just that – your assets. It’s also a great addition to your investment portfolio because life insurance cash values grow tax-deferred.
"Once you have insurance, you can revisit your coverage as you advance in your life stage and make changes as needed,” said Esteban.
Note that as you age, your insurance needs become smaller because your beneficiaries are growing older (and hopefully less dependent on you). At that time, you can choose to cash it in during your retirement years, or make it part of your estate and pass it on as inheritance for your family.