Life insurance is an important decision, it is one of the easily accessible risk management tools for an individual. However, this is one of the areas which has minimal knowledge, there are numerous myths surrounding life insurance and how it works. This has led to a lower number of people insuring their life, they do not understand the power of hedging their life risks and leading stress-free life. Here we go on to bust the most popular myths about life insurance policies.
10 Common life insurance myths
Myth-1: The utility of life insurance kicks in only after death
This is by far the most popular myth, typically the premiums that are paid towards life insurance are to hedge your life risk, they are not intended to provide any returns. This is often construed as an expense or cash outflow which will result in no returns.
The death benefit is the only return that comes in only upon the insured’s death. The important aspect that people miss understanding is that life insurance takes away a certain burden off your shoulder, and in the event of your eventuality, your loved ones will not be left to fend off financial woes.
Life insurance should be seen as a hedge against life risk and a reliever of your psychological stress.
Myth-2: Coverage under group term insurance will suffice
Group term insurance is a common, standard and basic cover offered uniformly for all the employees who fall within a specific rank. It does not offer a hedge against specific items.
Insurance of any kind should be customised to your needs. In addition to the group insurance, it is suggested that you opt for individual insurance with relevant add-ons aligned to your financial goals and needs. This will ensure that you have a comprehensive cover and during periods of job transition and job loss, you will still stay covered.
Myth-3: Young and healthy; why do I need life insurance?
During the pandemic, many young and healthy individuals succumbed to a viral infection. It is time that you burst your bubble because you are never too young or healthy to avail life insurance. Infact, buying when you’re younger and healthier will also save you money long-term.
Myth-4: Life insurance premiums are very expensive
Term insurance is one of the cheapest forms of life insurance, a 30-year-old can avail of term cover for Rs. 1 crore at less than Rs. 700 per month. The cost is less than a bill that you will foot when you eat out.
Myth-5: I have a pre-existing illness, and I am not eligible for life insurance
If you have a pre-existing illness, you will have to declare the same. In all probability, you will undergo a medical examination. Based on the results, the insurer will provide life insurance at a higher than usual premium.
Myth-6: I am too old for life insurance
There are many life insurance plans which are specifically designed for senior citizens, the age of entry is up to 80 years in many of the plans. The premiums would be expensive for life insurance when you avail of it at a later stage in life. It is advised that you avail yourself of life insurance at a young age for the maximum term.
Myth-7: If the premium amount were to be invested in other investment avenues, it would yield better returns
This is not how one should look at life insurance as it is a means to hedge your risk. While attempting comprehensive financial planning, hedging your life risk and health risk are the first steps that you will undertake. The amount in excess of these commitments net off your EMIs and household requirements will be allocated for investments. The only alternative approach to this mindset is to use dual benefit plans such as ULIPs which will offer you the required life insurance and yield returns.
Myth-8: Combining investments with insurance is a bad idea
Another myth that dwells is the polar opposite of the previous one, the people who fall prey to this myth think that only pure life insurance is a viable option for hedging life risk. Although you may choose to do so, there is absolutely nothing wrong with clubbing your financial goals alongside your life insurance requirement.
For example, you can avail a child plan for planning your child’s education, by availing of life insurance alongside, you also ensure that the death benefit enables your child to fulfil his / her dream even in the unfortunate event of your eventuality.
Myth-9: Only the person paying the premium can be the insured
This is a nuance that people tend to miss, you can avail of a life insurance plan on any other related individual. The person paying the premium and the policyholder or insured can be two different individuals. There are scenarios when one spouse undertakes the commitment towards premium payment while getting their partner insured.
Myth-10: Claim settlement from insurance is a hassle, instead just keep the money safe in the bank
Claim settlement has become quite seamless in today’s time this is one competitive aspect which becomes a determinant for availing of a policy. Many insurers have a very high claim settlement rate. Typically, one should not be looking at companies with a lower than 95% claim settlement rate whilst availing of a life insurance policy.
These are only some of the myths surrounding life insurance, but they are significant ones. Hope they have provided you with some insights on life insurance. Get in touch with Turtlemint Advisors who will ensure that you’re getting the right policy with the accurate information – you need.
This article is issued in the general public interest and is for educational purposes only. The blogs should not be used as a substitute for competent expert advice from a licensed professional to best suit your needs.