Is it necessary to buy either life or term insurance policies?

I am a 35-year-old working mother with two daughters. I haven’t bought any life insurance policy but I do have other investments. Is it necessary to buy life insurance or term insurance at this stage since I don’t have any liability?

—Name withheld on request

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

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

Another aspect to consider while the need for term insurance, is the liquidity of other investments. Sometimes individuals have a substantial portion of their wealth invested in real estate or equity in private companies. These assets take longer to evaluate liquidate. In the absence of an active income, dependents may face cash flow issues.

Term insurance provides an immediate liquidity support. If an individual has substantial assets but not liquid, they could buy term insurance coverage sufficient to cover expenses for the time taken to dispose the assets.

I am a 55-year-old individual and will be retiring soon. I am looking to buy a term policy for 15 years. Is 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 ie, until retirement.

The retirement age can be considered when you stop working completely, including part-time for money. After retirement, you would not have an active income, so there is no income to replace it. In fact, without an active income, you would be burdened with paying annual premiums from your retirement corpus.

It is common for people in their 50s, who have dependents, to buy term insurance. So, several insurers offer term insurance at the age of 55. You would have a number of options to choose from.

Abhishek Bondia is principal officer and managing director, SecureNow.in.

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