Why is buying life insurance early the best financial hack? | Casparus J.H. Kromhout | MD and CEO | Shriram Life Insurance

Life insurance isn’t something someone thinks of over a morning coffee. It is something that usually comes up in the quieter moments – when a family member is admitted to the hospital, when a friend has a baby, or when a financial form asks about your investments.

At times you might pause and think, “Am I too young to have life insurance?” However, the reality is, the best time to buy life insurance is before you think you need it.

Because that’s when it is the most affordable as premiums are low. Apart from lower premiums, there are other advantages of buying insurance early.

According to India’s Youth Policy document, 37.14% of Indians are in the age group of 15 and 29 years, which translates to 27.3% of the total population. This is a strong base for economically active individuals. However, life insurance penetration in India remains low. It marginally declined from 3% in FY23 to 2.8% in FY24. This indicates that a large portion of India’s youth remain underinsured or uninsured.

This gap can be attributed to the lack of awareness on life insurance as a protection instrument rather than a savings product. Additionally, there’s a perception that life insurance is only for older people, something that can be “worried about later”. Some common triggers for buying a life insurance policy are marriage, buying a house,
having a child, etc., which the young generation has been delaying. Many don’t see a pressing need for such a product.

However, life insurance is not only a smart financial move when you are young, it could be a game-changer in your long-term financial planning.

Lock in lower premiums

The policyholder’s age and health conditions influence life insurance premiums. At a young age, you are seen as a low-risk policyholder due to lower age and better health. This leads to high accumulated returns for low premiums. The approval process also becomes simple.

Support loan management

At an early age, if you buy a life insurance policy, it offers more than just long-term financial protection but also serves as a future loan management tool. Once the mandatory lock-in period is completed, certain policies like Endowment and Unit Linked Insurance Plans (ULIPs) allow policyholders to borrow against the surrender value. Depending on the policy type and the surrender value, the sanctioned loan amount typically ranges from 50—90%. This approach gives a convenient financing option without any liquidation. Moreover, it offers advantages such as faster
approval, lower interest rates and a flexible lookout for repayment. As such, it serves as a valuable financial cushion during unforeseen circumstances while preserving the long-term financial security of the dependents.

Long-term wealth creation through cash valuation

Some life insurance plans, such as endowment plans or ULIPs, include a savings or investment component that builds cash value over time. By starting early, young policyholders can maximise this benefit, creating a pool of funds for milestones like higher education, marriage, home buying, or retirement.

Harnessing the power of compounding

Starting the investment plan early can bring in the benefit from the power of compounding. Life insurance can yield guaranteed strong returns. When initiated at a young age, even a modest contribution can offer substantial returns, offering peace of mind and financial growth.

Easier policy approval with minimal medical screening

When you’re young and in good health, life insurance applications often require minimal medical screening, leading to faster approvals. As you age, health complications can complicate the process, resulting in higher premiums or potential denial. Early buyers avoid these hurdles entirely.

Tax benefits that last long

Life insurance premiums are eligible for tax deductions under Section 80C of the Income Tax Act, allowing a deduction of up to ₹1.5 lakh per annum, whereas the maturity proceeds are tax-free under Section 10(10D). Buying early means you can start reaping these tax benefits right from the beginning of your career, optimising
your overall savings.

In an increasingly unpredictable world, whether it be health risks, economic downturns, war threats or job instability, having a life insurance policy is not a luxury; it’s a necessity. Whether it’s for tax-saving, wealth-building, or securing a family’s future, the earlier you act, the greater the benefit. The decision to buy life insurance early in your career may seem premature, but in reality, it’s one of the most mature and strategic financial decisions you can make.