Is it necessary to buy a life or term insurance policy?

—Name withheld on request

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

While you may not have any outstanding financial liabilities as of today, you will have future obligations in terms of your children’s higher education, health care and other family commitments. You should evaluate whether your other investments are sufficient to meet all these future obligations.

Another factor to consider when evaluating the need for term insurance is the liquidity of other investments. Sometimes individuals have a large part of their wealth invested in real estate or equity in private companies. Liquidation of these assets takes more time. In the absence of an active income, dependents may face cash flow issues.

Term insurance provides immediate liquidity support. If a person has enough assets but not liquidated, they can buy enough term insurance coverage to cover the expenses of the time taken to dispose of the assets.

I am a 55 year old man and will be retiring soon. I want to buy a term policy for 15 years. Is there such a policy available? Should I buy a term policy at this stage?

—Name withheld on request

Term insurance is a way to provide financial independence to your dependents in your absence. You should buy term insurance to cover your active income generating age till retirement.

Retirement age can be considered when you stop working completely, including part-time, for money. After retirement, you will no longer have active income, so there is no income to replace it. In fact, without active income, you will be burdened to pay annual premiums from your retirement corpus.

It is common for people over the age of 50 who have dependents to buy term insurance. Therefore, many insurers offer term insurance at the age of 55. You will have many options to choose from.

Abhishek Bondia is the Principal Officer and Managing Director of SecureNow.in.

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