At what age should you buy Term Insurance? Does it make sense to lock lower premium at an early age?

Recently I met a nephew of mine who during a casual conversation told me he had bought a term insurance plan of INR 3 crore for INR 40,000 premium 4 years ago and how relieved he was he bought it at that point because now the premiums have increased. He was 27 at the time he had bought this policy and had no dependents on his income.

Most insurance companies and agents encourage people to buy insurance as early as possible which would be when they are in their 20s. The rationale for this is because premiums are less the earlier you buy. Now, insurance has to be bought only when you have dependants on you; so a person who is in his 20s and entered the workforce in the past 3 to 4 years is unlikely to have any dependents specially if not married.

Most agents and insurance companies would tell Clients that even they do not have dependents at this stage, they would have dependents when they get married and have children. If they wait for these events then premiums could increase by 20 to 30% and hence they should lock into lower premiums at a young age. Let us take the example of my nephew and see if this makes financial sense.

The same policy of INR 3 crore insured upto the age of 80 years, is now costing INR 45,800 a year. This is an increase of INE 5,800 per year. This is what my nephew was saying, that he is now saving INR 5,800 per year by buying the policy early. But, the fact is he already paid the premium for 4 years. If this was invested at an average of 8% p.a. that corpus would have been ~INR 1,80,000 by now. So if he were to again invest this @8 p.a. that is INR 14,400 a year; out of this he is only shelling out another INR 5,800. So by delaying he is actually saving INR 8,600 (14,000-5,800) plus the corpus of INR 1.8 lakhs accumulated over the past 4 years.

Do not think far ahead of you getting married and your spouse and child needing financial protection. Even if you get married; your spouse may also be working and hence not dependent on your income. So, it is important to not go for the lure of lower premiums and take term insurance if you have no dependents.