Term Insurance Myths
Life insurance is a crucial choice since it is one of the most readily available risk management instruments for individuals. However, this is one of the areas in which there is little awareness; there are several misconceptions about life insurance and how it works. This has resulted in fewer individuals insuring their lives since they do not grasp the need to hedge their life risks and live a stress-free lifestyle. Here, we will debunk the most common fallacies regarding life insurance coverage.
Some most common life insurance myths
Myth-1: The utility of life insurance kicks in only after death
This is by far the most common fallacy; normally, the premiums paid for life insurance are designed to manage your life risk rather than give you any profits. This is often seen as a cost or monetary outlay that will provide no returns.
The death benefit is the sole return that occurs exclusively after the insured’s death. The crucial feature that many people overlook is that life insurance relieves some of your financial burdens, and in the case of your death, your loved ones will not be left to fend for themselves.
Life insurance should be seen as a risk-reduction strategy as well as a way to alleviate psychological stress.
Myth 2: Coverage under group-term insurance will suffice
Group term insurance is a typical, standard, and basic coverage provided consistently to all workers within a given rank. It does not provide a hedge against certain objects.
Insurance of any sort should be tailored to your specific requirements. In addition to group insurance, it is recommended that you get individual insurance with appropriate add-ons based on your financial objectives and requirements. This ensures that you have full coverage, even during instances of employment upheaval and loss.
Some firms provide group life insurance coverage to their workers. In such instances, we frequently believe it sufficient, neglecting the significance of establishing an independent term policy.
Reality: While being protected by your employer’s group insurance policy might provide peace of mind, have you reviewed the coverage amount? Would that money be enough to help your family through the difficult years ahead if you were not present? Also, what if you wish to change employment and your new employer does not provide similar benefits? – Have you considered these facts?
Even if your workplace provides group life insurance coverage, it is still a good idea to get a personal term life insurance policy.
Myth 3: Young and healthy, why do I need life insurance?
During the pandemic, many young and healthy people died from a viral illness. It’s time to burst your bubble, since you’re never too young or healthy to get life insurance. Purchasing while you’re younger and healthier might save you money in the long run.
Humans are frail creatures, and life is unpredictable. What will happen when it cannot be foreseen and when catastrophic events may occur is anyone’s guess. You must understand that you are leaving behind those who depend solely on you. Accidents involving young people are becoming more prevalent, and we need to be more aware of this. We must consider not only ourselves but also our loved ones, who would suffer without us.
Myth 4: Life insurance premiums are very expensive
Term insurance is one of the most affordable kinds of life insurance; a 30-year-old may get term coverage for Rs. 1 crore for less than Rs. 700 per month. The cost is less than the bill you’ll pay when you dine out.
Term life insurance is frequently thought to be more costly than other types of life insurance on the market.
Reality: Nothing could be more false. The reality is that term life insurance plans provide more coverage for lower premiums than other types of life insurance policies.
Traditional market plans such as ULIPs, endowment policies, money-back policies, and so on typically provide a total coverage of 10% of their annual premium amount. For example, if you purchase one of these policies with an annual payment of Rs 20,000, the coverage amount would be Rs 2 lakh. This is little in comparison to your family’s necessities in the event of your untimely death. In contrast, term life insurance provides a substantially larger sum insured in the event of the policyholder’s death within the policy period for the same premium amount.
Myth 5: I have a pre-existing illness, and I am not eligible for life insurance
If you have a pre-existing ailment, you must disclose it. Most likely, you will have a medical checkup. Based on the findings, the insurer will provide life insurance at a higher-than-normal price.
Myth 6: I am too old for life insurance
Many life insurance policies are expressly created for older folks, with entry ages of up to 80 years. When you apply for life insurance later in life, the rates will be higher. It is recommended that you get life insurance at a young age for the maximum duration.
Myth-7: If the premium amount were to be invested in other investment avenues, it would yield better returns
This is not how life insurance should be viewed since it is a risk-management tool. The first step in comprehensive financial planning is to hedge your life and health risks. The income remaining after deducting your EMIs and living expenses will be used to make investments. The only alternative to this thinking is to employ dual benefit plans such as ULIPs, which provide the necessary life insurance while also yielding profits.
Myth-8: Combining investments with insurance is a bad idea
Another misconception that exists is opposed to the preceding one; those who believe in this myth believe that only pure life insurance is a suitable alternative for hedging life risk. Although you may choose to do so, there is nothing wrong with combining your financial objectives with your life insurance needs.
For example, you may use a kid plan to plan your child’s education; by simultaneously purchasing life insurance, you guarantee that the death benefit allows your child to pursue his or her passion even if you die.
Myth 10: Claim settlement from insurance is a hassle; instead, just keep the money safe in the bank
Claim settlement has grown pretty simple in today’s time, and this is one competitive component that forms a deciding factor when purchasing insurance. Many insurers have very high claim settlement rates. Typically, while purchasing a life insurance policy, one should avoid organisations with a claim settlement rate of less than 95 per cent.
I purchase a term plan, pay a premium regularly with no expectation of a maturity benefit, and if I die, the claim is denied. Why should I acquire such a plan?
Reality: According to the recently issued IRDA annual report, the average death claim settlement ratio for insurance firms was between 85.3 and 99.07 per cent in the previous fiscal year. So, for every 100 policies, a maximum of 15 were denied, which is not a high rejection rate.
Myth 11: All term life insurance plans are the same; they cannot be customised
There is a common belief that all term plans have just one feature: if the policyholder dies within the policy period, the insurance company will pay the amount insured to his or her family. And they cannot be modified to meet our specific requirements.
Reality: In today’s world of increasing competition, nothing can stay the same for long, so why should long-term plans be any different?
Today, term insurance plans offered by any insurance company can be customised as per your needs. You may increase the benefits of your term plan by adding riders such as accidental death, severe diseases, and so on. Furthermore, if you are unsure about purchasing a pure term plan, you have the option of returning the payment, raising or lowering the term life insurance plan, obtaining convertible term life insurance, and so on.
Contrary to common assumptions, there are too many choices and alternatives nowadays.
Myth 12: The buying-term life insurance process is lengthy
People are sometimes reluctant to get term life insurance since the procedure is time-consuming when done via an offline channel. It is necessary to fill out multiple forms and submit different papers.
Reality: Term life insurance products are now accessible online, making it as simple as a few clicks. For example, to purchase a term life insurance plan via a website, all you need to do is answer a few essential questions, such as your age and whether you smoke, then compare several policies and click the buy button. It’s that easy!
Myth 13: I am single; hence, I do not need a term plan
Term life insurance is often thought of as a policy purchased later in life when you marry and establish a family.
Reality: It is a common fallacy that if you are not married or have children, you do not need term insurance. If you have a house loan, a vehicle loan, or even a college loan, you certainly don’t expect your family to carry the financial load in the event of an emergency, right? Furthermore, if your parents rely on you, how would they handle their financial obligations if you died unexpectedly?
In such instances, the coverage level for life-term insurance may be lower than for someone who is married and has children; nevertheless, this does not indicate that there is no need at all.
Myth 14: Rs 1 crore term life insurance cover is enough
The Rs 1 crore term life insurance limit has been well marketed. As a result, we generally choose this amount when purchasing a plan since we believe it will provide enough coverage.
Reality: Even though this eight-figure sum seems to be large and impressive, it is a random number with no mathematical basis.
Now, calculate your term insurance coverage using a more scientific method. First, account for your monthly spending (which should be 15 times your present expenses), obligations, major objectives and life events, and your spouse’s retirement fund (if married). Given all of these elements, calculate how much your family will need while you are not present.
In the second stage, reduce any existing wealth (mutual funds, FDs, PFs, etc.) from the total amount required. The balance represents the amount of coverage required for term life insurance.
Myth 15: I Bought a Life Insurance Policy Long Back; I Am Safe and Covered
The only constant in life is change. The world around us changes regularly. The amount guaranteed that you purchased years ago may not be adequate for you and your family members now. Given the increase in inflation and your duties, you will need an amount secured that is at least 20 times more than your yearly salary. You should constantly check your life insurance portfolio to ensure that you have enough coverage for your current lifestyle.
Myth 16: The coverage of a term insurance plan cannot be increased
This is one of the most common fallacies concerning term insurance plans. Well, it is not true. If a person chooses a plan based on their salary at the age of 25, he or she may raise the amount after they reach the age of 30 or 40 and become wealthy. Some insurance products, such as SBI Life eShield, Bajaj Allianz Term iSecure, and Aegon Religare Life iTerm, allow you to increase the coverage of your insurance policy. However, this will undoubtedly cost more, but you do not need to purchase a separate term plan. Aside from that, depending on an individual’s present salary and the demands of his or her family, nothing else can compare to the insurance coverage given by the policy.
Myth 17: Non-Breadwinners Can Avoid Owning Life Insurance
Every person in a family, whether a breadwinner or not, has a job to perform in the home. The absence of that person might be expensive for the whole family. If a stay-at-home spouse dies, the earner will require domestic assistance with day-to-day tasks.
In addition, in such a scenario, the breadwinner must always take time off from work to be with the family and help them recover from their loss. There is a collateral cost involved with this, but the non-breadwinner’s insurance may be able to offset it.
Myth 18: My death will only reap the benefits of insurance, which provides me with no utility.
This is the most common misconception across the board. Life insurance plans are not restricted to payments after death; there is a wide range of insurance components to pick from. Your plan will determine whether or not you purchase an insurance policy. If your ultimate aim is comprehensive coverage, a term insurance policy is the best option for you.
If you have additional objectives, such as saving for the future, you may choose endowment or ULIP plans. There are several policies to select from, and they are not restricted to claims for recovery after death.
Conclusion
These are only a few of the fallacies about life insurance, but they are big ones. I hope these have given you some insights on life insurance.
Understanding the facts behind popular life insurance misconceptions is critical for making sound financial choices. Life insurance is a powerful instrument that provides peace of mind, financial stability, and safety for your loved ones. Don’t allow misunderstandings to keep you from considering life insurance. Take the time to research your alternatives, speak with specialists, and make a decision that meets your specific requirements and circumstances. We hope that by refuting these common fallacies, you will be able to make more educated decisions and receive the financial protection you and your loved ones deserve.