When should you not buy a term insurance policy?

When we talk about life insurance, pure protection term plans are the best bet. They provide adequate protection at very low cost. Take this, a term plan for a 30-year-old non-smoking woman that covers her till the age of 60 will cost her about 1,000 per month. This costs less than a dinner outing for two. When bought even earlier at the age of 26, the premium will be cheaper by 20%. But low premiums should not be the reason to buy insurance early. When you need insurance and how much is a function of your prevailing financial circumstances and there could be situations when you don’t need life insurance at all. Mint tells you three reasons to not buy term insurance.

No dependents, liabilities: The crux of life insurance is to give financial protection to your dependents in your absence.

If you don’t have any dependents, there’s no one to protect against eventualities. This could be the case with young earners who are not married and have financially well-off parents. “Any insurance decision should boil down to the severity of the financial burden and the capacity of the family to bear this burden,” said Mahavir Chopra, co-founder and CEO, Beshak.

The idea is also not to pass on your liabilities to your kin in case of your demise. So, even if you don’t have dependents but are servicing a loan, it is recommended that you buy a term cover equivalent to the loan amount.

Have significant assets: In a scenario where you have built significant assets and have very few or no liabilities, you can skip taking life insurance. However, be mindful to carry this calculation carefully. Assets and accumulated wealth should be able to replace the sole breadwinner’s income after deducting all loans. Additionally, if you have financial goals lined up far into the future, such as college for children or spouse’s retirement, those assets should be able to fund these goals.

To save tax: The premium paid for term insurance policy can be availed as a deduction from the 1.5 lakh tax break available under section 80C, provided the annual premium doesn’t exceed 10% of the sum assured. Many taxpayers rush to buy life insurance for tax breaks towards the end of the financial year, even if their financial situation doesn’t demand one. You can utilise the 80C deduction through PPF, ELSS, housing loan, etc. instead of buying insurance even if your family does not need it.

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