Life insurance is a financial product that most of us would have heard about sometime in our life, if not already analysed and invested in. We tend to complicate matters when unsure and the same is with life insurance. Ignorance breeds confusion and myths. Below, I have tried to debunk some common myths that people believe about life insurance.
1. I am young and healthy, so I don’t need life insurance. Start early and reap the benefits in the long run’. Insurance companies charge lower premiums at younger age. This is because the individual would be healthier and thus the risk exposure for the insurance company is lower. Also, you may find it difficult to take life insurance when you are old due to higher premium rates or being refused because of ill-health.
2. I am single with no kids/dependants, so I don’t need life insurance You need life insurance at least to cover your personal expenses, debts and bills. If you are uninsured you will leave unpaid expenses behind for your family or executor to pay.
3. Only the breadwinners of the family need life insurance. Life is unpredictable and this fact doesn’t escape anyone. We must understand that each and every member in the family is irreplaceable. For example, the sudden demise of the stay at home parent disrupts the family balance, forcing the working parent to change lifestyle, which could impact earnings and expenses. Thus, it is equally important to insurance other members in the family.
4. Group insurance plan provided by employer is sufficient Employer provided group insurance plans have a limited scope of cover and are not personalised for specific requirements or riders as per your family’s needs. Also, if you quit your job or at the time of retirement the coverage would end and portability is not possible as you were never the owner of the policy. Thus, it is advised to take a separate life insurance policy.
5. Twice my income is enough cover in your absence your family will need enough money to cover the loss of your regular income, liabilities and education/marriage costs of children etc. A thumb rule is that life cover should be at least ten times your annual income plus your other liabilities such as outstanding car insurance loan, home insurance loan, etc. One must not forget to take into account inflation while deciding amount of coverage.
6. Claims are tedious and never reaches the beneficiary easily Insurance companies are required to carry out adequate checks and verifications to ensure that the claim is genuine. This can turn out to be time consuming. However, IRDA guidelines mandate insurance companies to settle claims within 30 days of receipt of all documents, including clarification sought by the insurer. If the claim requires further investigation, the insurer has to complete its procedures within six months from receiving the written intimation of claim.
7. Life insurance is for saving taxes Tax savings through life insurance plans are an added benefit, however this should never be the only reason for buying a plan. The main benefit of a life insurance plan is that it provides financial security to your loved ones in case of unforeseen event of your demise.
8. Better to invest the money elsewhere than buying life insurance Life Insurance is financial the protection you give your loved ones against the unforeseen event of your demise. The premiums paid in an insurance plan go towards this financial protection. Thus, life insurance is primarily a contingency product and not only an investment.