Insurance policies

Is it necessary to take out life insurance or term insurance?

I am a 35 year old working mother with two daughters. I have not taken out a life insurance policy, but I have other investments. Is it necessary to take out life insurance or term insurance at this stage since I have no liability?

—Name withheld on request

Life insurance is highly recommended for working professionals in their mid-30s with dependents. Think of life insurance as a way to replace your income in your absence, so that your children’s education and well-being are taken care of.

Although you may not have any outstanding financial liabilities to date, you would have future obligations in terms of your children’s college education, health care, and other family commitments. You need to assess whether your other investments are sufficient to meet all of these future obligations.

Another aspect to consider when evaluating the need for term insurance is the liquidity of other investments. Sometimes individuals invest a significant portion of their wealth in real estate or in shares of private companies. These assets take longer to liquidate. In the absence of an active income, dependents may face cash flow problems.

Term insurance provides immediate cash support. If a person has significant assets but no cash, they could purchase enough term insurance to cover expenses for the time it takes to dispose of the assets.

I am 55 years old and will soon be retiring. I am looking to purchase a 15 year term insurance policy. Is such a policy available? Should I buy a temporary policy at this point?

—Name withheld on request

Term insurance is a way to provide financial independence for your dependents in your absence. You should purchase term insurance to cover your active income generation age, i.e. until retirement.

Retirement age can be considered when you stop working completely, including part-time for money. After retirement, you would have no active income, so there is no income to replace it. Indeed, without active income, you would be overwhelmed by paying the annual premiums of your retirement corpus.

It is common for people in their 50s, who have dependents, to purchase term insurance. Thus, several insurers offer term insurance at age 55. You would have several options to choose from.

Abhishek Bondia is Senior Director and Managing Director of SecureNow.in.

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