Myths About Life Insurance
Life insurance is a smart investment. It can secure you and your loved ones financially, give you peace of mind, offer affordable options, and much more. However, a lot of people do not know all the features and benefits of life insurance policies and end up believing in some myths doing the rounds. It is crucial to fully understand the product you are putting your money into, which is why this article debunks some of the most common life insurance myths.
Misconceptions about life insurance
- Life insurance is only for the earning member of a family:
While it can be critical for the breadwinner to get a suitable life insurance plan, other members of a family should also consider it. There are several types of life insurance plans, such as retirement plans, child plans, unit-linked insurance plans, etc., that cater to varied needs. While life insurance is a tool to safeguard the family it can also be used as an investment and savings instrument by the other members. When other members besides the primary breadwinner, have life insurance, it can act as a fall back in case the primary breadwinner has to take care of other family duties and has reduced or no income.
- Life insurance is expensive:
A lot of people think that life insurance is expensive. However, the great thing about life insurance plans is that there are multiple affordable options to choose from based on your unique preference. You can customise your plan to suit your budget. Moreover, there are several ways to lower the costs of life insurance. For example, buying life insurance at a young age can help you get a low premium.
- Employer-provided life insurance is enough:
An employer's life insurance plan can be an advantage. However, it is still recommended to get a plan of your own. In most cases, group insurance plans offer minimal cover with general features that cannot be customised according to your needs. Moreover, your group insurance coverage is only valid till you work with the same employer. The day you quit, the insurance will cease to cover you. Therefore, it is better to have a personal life insurance plan irrespective of whether or not you get one at work.
- Life insurance is for the elderly:
One of the biggest myths about insurance is that it is meant for the older age groups. However, the truth cannot be farther away. Life is unpredictable, and an unfortunate event can knock on your door when you least expect it. Buying life insurance at a young age and with a long policy term ensures that you and your loved ones will always be protected against financial hardships. Moreover, young people can buy life insurance at a low premium, which helps in saving money.
- Life insurance is only a tax-saving tool:
While life insurance does offer several tax benefits under Section 80C, 80D and 10 (10D) of the Income Tax Act, 1961, amended from time to time, this should never be the sole reason to buy it. The primary objective of a life insurance plan is to offer life protection and financial stability. Tax benefits are only an added benefit. So, when you buy a plan, pay attention to its features and offerings and then make a choice.
- Life insurance is not required if you have health insurance:
Life and health insurance are two very different types of insurance products that cannot be compared. The former offers the nominee the sum assured of the plan in the event of death. The latter, i.e., health insurance, provides a lump sum payout on the diagnosis of an illness, accident, or similar health concerns to the policyholder. Both products are equally important and should be bought early in life.
To sum it up
Understanding the truth behind these life insurance myths can help you set your expectations right and pick a plan based on logic and rationalisation rather than mere misconceptions. So, do keep these points in mind and get yourself a insurance plan that can offer you and your loved ones a protective financial shield.
Frequently Asked Questions (FAQs)
- Who needs life insurance?
Life insurance is essential for all individuals, including earning members of a family, homemakers, couples, couples with children, unmarried individuals, etc.
- Does life insurance offer other financial benefits other than the sum assured?
Life insurance lets you save and invest your money for future goals. It also offers tax benefits to maximise your returns.
- Is term insurance the only life insurance product?
No, term insurance is only one type of life insurance. There are several other plans like ULIPs, return of premium insurance, endowment insurance, pension plans, annuity plans etc., and also many riders that are available that help enhance your protection coverage.
- What are the factors that affect life insurance premiums?
Life insurance premium depends on multiple factors. The most common factors that affect premiums that should be kept in mind are:
Health and Lifestyle: Generally a healthy person with a healthy lifestyle will have a lower premium as compared to an unhealthy person with habits such as smoking and alcohol consumption.
Age: The general thumb rule is, that the lower the age of the insured person, the lower will be the premium
Sum insured: The premium amount also depends on the value of the Sum insured.
- What should Life insurance be used for?
While life insurance plans are primarily used to secure a family's financial future in case of an adverse event, there are also other aspects one can consider.
Tax benefits: All Life insurance plans offer tax benefits. Premiums paid can be deducted from taxable income under section 80(C) and 80(D) of the Income Tax act of 1961. Proceeds from death claims or maturity also get tax exemptions as specified under section 10 10(D) as well.
Planning for retirement: Among the multiple plans offered by Life insurance products, some are tailored to help you secure your retirement. Plans such as Pension, annuity and endowment can offer a guaranteed income on maturity.
Investment option: Unit-linked insurance plans offer an investment option that gives the policyholder, an opportunity to grow wealth while getting the financial safety of insurance at the same time.
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