Sunday, 26 July 2015

The Cost of Buying Insurance at a Later Age

You have probably heard that it is better to buy insurance at a young age, as the insurance premiums will go up while health conditions will go down with age. However, how costly is it to put off buying insurance until an older age? Previously, you need to have an insurance agent friend to know this. However, with, we can now know the cost of putting off buying insurance until an older age.

The chart below shows the annual premiums (blue) and total premiums (red) for a level term insurance with critical illness benefits for a non-smoking male with a sum assured of $1 million covering until 70 years old. Using age 25 as an example, the annual premium is $3,150, payable for 45 years until age 70. The total premiums payable would be $141,700. If this person were to put off buying insurance for 5 years until he is 30 years old, the annual premium would go up to $4,280, payable for 40 years until age 70. The total premiums payable would be $171,400. Do note that the insurance product used for analysis is not the cheapest term insurance product available on compareFIRST. This product was chosen as it has the widest age coverage. Hence, the proper way to read this blog post is to understand the relative differences in premiums rather than to take the premiums as absolute numbers. Moreover, the terms of the insurance (i.e. type of product, age of coverage, sum assured, etc.) assumed in this analysis might not be what you need.

Variation of Insurance Premiums with Starting Age

As shown in the figure above, the annual premiums will increase with age. The increase will start slowly, but will accelerate at the age of 30. The average increase in annual premium is approximately 29% for each 5-year increase in age between age 20 and 65. On an annual basis, the increase in annual premium works out to be approximately 6%. 

The total premiums payable over the policy duration will also increase with age. Like the annual premium, the increase in total premiums will start slowly, but will accelerate at age 30. The total premiums will reach a peak at age 55 before falling off, due to the shorter policy duration. It is interesting to note that until the age of 25, the total premiums do not increase by a lot, but you get to enjoy a longer coverage (the premiums above are for an insurance policy covering until age 70, regardless of the starting age of coverage).

There are 2 key reasons why total premiums will increase with age. Firstly, as a person ages, his health also deteriorates, thus increasing the risk to the insurer. Secondly, with a shorter policy duration, less time is available for the insurer to invest the premiums to generate the insurance payouts.

In conclusion, it is true that it is better to buy insurance at a young age. Based on the above analysis, the ideal age to buy insurance seems to be before the age of 25. If you have not bought any insurance, it is perhaps a good time to ponder over it. Notwithstanding the above, it is important to note that age is not the only factor in deciding the purchase of insurance. There are many more important factors, such as whether you have set up a family, have children, bought a house, etc. There are other insurance products such as whole-life, reducing term and endowment insurance available on which might be more suitable for you. You can vary some of the parameters and see which insurance is best suited for you.

By the way, when you meet your insurance agent, please let him/ her know that you found out about it on compareFIRST, so that insurers can place more of their insurance products on it for comparison.


  1. I like your choice of comparefirst

    1. Yes, it is a good source of information on insurance policies that we could only get from insurance agents previously.