Term Insurance is becoming very popular product now a days. In fact, it is very much essential for every earning person to go for Term Insurance. Term Insurance products are very cheap and provide good coverage in case of eventuality. The money received from Term policy can take care of the family’s need in the future.
Now a days, Insurance companys are coming up with whole life insurance products. It is like, insurance coverage till the age of 100. However the longer period you go for coverage, the higher the amount you pay. So, one need to balance between coverage and number of years one need to be covered.
But the question is, what is ideal period for coverage or for how long one must go for insurance coverage? This topic is dedicated for this discussion only.
Let us begin with by taking one typical example. A 40 years aged person going for Rs 1 Cr term plan till the age of 70 years pays Rs 20,000 per annum as premium. However, if the same person chooses to go for 100 years coverage, premium amount would increase to around Rs 35000.
So assume that one goes for insurance coverage till the age of 70 years. Hence there would be annual savings of Rs 15000. As we are taking here long term and we have seen that Stock Market / Mutual Funds have given return of over 18% in 20+ years. For the sake of calculation, let us assume that market would give return of over 16% over long long term in future too. So, the savings ones get of Rs 15000 puts into Mutual Fund. Lets see the value generated by this Rs 15000 in long term.
| Year/Age | Beginning Balance | Premium | Interest ( @16%) | Balance |
| 41 | 15 000 | 2 400 | 17 400 | |
| 42 | 17 400 | 15 000 | 5 180 | 37 580 |
| 43 | 37 580 | 15 000 | 8 410 | 60 990 |
| 44 | 60 990 | 15 000 | 12 160 | 88 150 |
| 45 | 88 150 | 15 000 | 16 500 | 1 19 650 |
| 46 | 1 19 650 | 15 000 | 21 540 | 1 56 190 |
| 47 | 1 56 190 | 15 000 | 27 390 | 1 98 580 |
| 48 | 1 98 580 | 15 000 | 34 170 | 2 47 750 |
| 49 | 2 47 750 | 15 000 | 42 040 | 3 04 790 |
| 50 | 3 04 790 | 15 000 | 51 170 | 3 70 960 |
| 51 | 3 70 960 | 15 000 | 61 750 | 4 47 710 |
| 52 | 4 47 710 | 15 000 | 74 030 | 5 36 740 |
| 53 | 5 36 740 | 15 000 | 88 280 | 6 40 020 |
| 54 | 6 40 020 | 15 000 | 1 04 800 | 7 59 820 |
| 55 | 7 59 820 | 15 000 | 1 23 970 | 8 98 790 |
| 56 | 8 98 790 | 15 000 | 1 46 210 | 10 60 000 |
| 57 | 10 60 000 | 15 000 | 1 72 000 | 12 47 000 |
| 58 | 12 47 000 | 15 000 | 2 01 920 | 14 63 920 |
| 59 | 14 63 920 | 15 000 | 2 36 630 | 17 15 550 |
| 60 | 17 15 550 | 15 000 | 2 76 890 | 20 07 440 |
| 61 | 20 07 440 | 15 000 | 3 23 590 | 23 46 030 |
| 62 | 23 46 030 | 15 000 | 3 77 760 | 27 38 790 |
| 63 | 27 38 790 | 15 000 | 4 40 610 | 31 94 400 |
| 64 | 31 94 400 | 15 000 | 5 13 500 | 37 22 900 |
| 65 | 37 22 900 | 15 000 | 5 98 060 | 43 35 960 |
| 66 | 43 35 960 | 15 000 | 6 96 150 | 50 47 110 |
| 67 | 50 47 110 | 15 000 | 8 09 940 | 58 72 050 |
| 68 | 58 72 050 | 15 000 | 9 41 930 | 68 28 980 |
| 69 | 68 28 980 | 15 000 | 10 95 040 | 79 39 020 |
| 70 | 79 39 020 | 15 000 | 12 72 640 | 92 26 660 |
| 71 | 92 26 660 | 15 000 | 14 78 670 | 1 07 20 330 |
| 72 | 1 07 20 330 | 15 000 | 17 17 650 | 1 24 52 980 |
| 73 | 1 24 52 980 | 15 000 | 19 94 880 | 1 44 62 860 |
| 74 | 1 44 62 860 | 15 000 | 23 16 460 | 1 67 94 320 |
| 75 | 1 67 94 320 | 15 000 | 26 89 490 | 1 94 98 810 |
| 76 | 1 94 98 810 | 15 000 | 31 22 210 | 2 26 36 020 |
| 77 | 2 26 36 020 | 15 000 | 36 24 160 | 2 62 75 180 |
| 78 | 2 62 75 180 | 15 000 | 42 06 430 | 3 04 96 610 |
| 79 | 3 04 96 610 | 15 000 | 48 81 860 | 3 53 93 470 |
| 80 | 3 53 93 470 | 15 000 | 56 65 360 | 4 10 73 830 |
| 81 | 4 10 73 830 | 15 000 | 65 74 210 | 4 76 63 040 |
| 82 | 4 76 63 040 | 15 000 | 76 28 490 | 5 53 06 530 |
| 83 | 5 53 06 530 | 15 000 | 88 51 440 | 6 41 72 970 |
| 84 | 6 41 72 970 | 15 000 | 1 02 70 080 | 7 44 58 050 |
| 85 | 7 44 58 050 | 15 000 | 1 19 15 690 | 8 63 88 740 |
| 86 | 8 63 88 740 | 15 000 | 1 38 24 600 | 10 02 28 340 |
| 87 | 10 02 28 340 | 15 000 | 1 60 38 930 | 11 62 82 270 |
| 88 | 11 62 82 270 | 15 000 | 1 86 07 560 | 13 49 04 830 |
| 89 | 13 49 04 830 | 15 000 | 2 15 87 170 | 15 65 07 000 |
| 90 | 15 65 07 000 | 15 000 | 2 50 43 520 | 18 15 65 520 |
| 91 | 18 15 65 520 | 15 000 | 2 90 52 880 | 21 06 33 400 |
| 92 | 21 06 33 400 | 15 000 | 3 37 03 740 | 24 43 52 140 |
| 93 | 24 43 52 140 | 15 000 | 3 90 98 740 | 28 34 65 880 |
| 94 | 28 34 65 880 | 15 000 | 4 53 56 940 | 32 88 37 820 |
| 95 | 32 88 37 820 | 15 000 | 5 26 16 450 | 38 14 69 270 |
| 96 | 38 14 69 270 | 15 000 | 6 10 37 480 | 44 25 21 750 |
| 97 | 44 25 21 750 | 15 000 | 7 08 05 880 | 51 33 42 630 |
| 98 | 51 33 42 630 | 15 000 | 8 21 37 220 | 59 54 94 850 |
| 99 | 59 54 94 850 | 15 000 | 9 52 81 580 | 69 07 91 430 |
| 100 | 69 07 91 430 | 15 000 | 11 05 29 030 |
80 13 35 460 |
So, from this example you can see that the saving grows to Rs 1 Cr in the 71st year. In fact, the same grows to Rs 80 Cr in 100th year. Hence, optimum years till one should go for insurance is 70-72 years, and savings in premium should be invested in Mutual Fund to generate even more value.
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