7 Myths Life Insurance

You should never let insurance myths keep you from achieving your financial goals. Planning for contingencies like death and hospitalisation forms an important part of financial planning. By purchasing a life insurance cover, one can ensure support to the dependents of his/her family in the event of his/her death.
There are a number of myths associated with life insurance that should be debunked first:

Life insurance is a waste of money -  Life insurance is meant to provide protection from the contingency of death. It takes care of a family's living expenses should the holder die young.  Life insurance is more of a safety mechanism; it is to provide financial security to the dependents. Term policies that cover the risk of untimely death are cheap and also most ideal for providing life coverage.

Life insurance is for saving taxes alone -  This could probably be a selling point for agents but tax-saving is one of the many benefits life insurance offers. The main benefit is the provision of finances in case of the death of the policy holder. Taxes can be saved with other tax-saving instruments also, like mutual fund, ELSS, NSC, and public provident fund (PPF).  Planning for the financial needs of one's family in the event of his/her death is a must. Ideally, the cover should be for about 7 to 10 times the annual income of the bread-earner.

The young don't need life insurance -  The common notion that people die when they are old may be true to a large extent, but having the risk of death covered is definitely better than leaving dependents financially bereft. In fact, a smarter move here is to take the benefit of lower premium rates offered to the young. 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.

Life, medical covers are provided by employers -  Such covers are available only until you continue to work with the employer. Also, life insurance provided by employers may not adequately cover the living expenses of your family in the case of sudden, unexpected death.  It is advisable to buy medical insurance when one is young, as fresh medical insurance taken just prior to retirement could be refused on medical grounds. Critical illness policies help meet additional living expenses of the family members in case of a critical illness.

Attractive units for a limited period -  This is more of a sales gimmick in most cases. Most insurance products are designed in such a manner that all the major costs are incurred in the first few years and deducted from the premium. There are charges that the company wishes to recover over the entire tenure of the policy. So very less is actually invested in units.  It is, therefore, best to look at unit-linked insurance plans with an open mind and consider a commitment of periodic investment for the whole tenure of the insurance policy. Paying for a longer tenure could result in a more profitable proposition.

Best to buy policy in a minor's name -  This emotional sentiment selling point has helped many in selling policies. Also, the premium paid on child policies may be much less than on a policy for an adult wanting the same coverage.  Do we really need life cover for a minor? A life insurance policy is taken to make the loss of income to the family good. Therefore, a smarter thing to do is to take a policy with a child as beneficiary or nominee and life cover to the bread earner.

Pleasing relatives/associates is important - Avoid taking policies just for the sake of satisfying your friends and relatives who are insurance agents. Also, avoid taking policies just to maintain your relationship with business associates such as bankers.

Insurance policies need to be taken based on your need. These days, online term insurance plans are approximately 50 per cent cheaper when compared with term policies taken through agents or brokers.

Having understood these myths, one can make insurance a very valuable and useful proposition