Life insurance has always been the subject of discussion in most of my financial counselling sessions. Is it the best type of insurance?” Or is it a waste of money? In the event of an untimely death, life insurance is purchased to protect the policy owner’s financial interests. You’d be able to pay for the living costs of your family if you died young.
It is a way of providing financial security to the dependants; it is more of a safety mechanism. The cheapest and most effective way to provide life insurance is through life insurance plans that provide coverage for the risk of untimely death.
Life insurance works on a simple principle. At least when compared to other industries, the financial industry is also morbid. A small amount of money is paid over time so that your beneficiary gets a sum of money equivalent to what you would have made if you were still alive.
Generally, what type of insurance does this type of investor typically purchase? The answer is, most people end up buying endowment policies or money back policies. In other words, they argue, these types of plans provide a return on investment.
Let’s take a look at some common myths about life insurance types and their realities:
Myths About Life Insurance Debunked
1. Life Insurance Is For Saving Taxes
Agents could use this to their advantage. The fact that life insurance can reduce taxes is one of the many benefits it provides. Beneficiaries receive financial assistance in the event of the death of the policyholder. In addition to mutual funds, tax-saving bonds, government bonds, post-office savings plans, and the Public Provident Fund (PPF), other instruments can be used to save taxes.
It is extremely important to pay a premium to ensure that the family will be financially secure in the event of the breadwinner’s death. In most cases, the insurance coverage should equal about 7 to 10 times the earnings of the breadwinner.
2. Payout will be denied or will be taxed
The purpose of life insurance is to stabilise a family’s security even in the absence of the insured. Each time the premium is paid, the insured is required to pay a certain amount. In the event of the insured’s death, this policy will provide his or her family with financial assistance.
Unless you haven’t made any false claims or provided wrong information during the signup process, your payout cannot be denied. Moreover, life insurance itself is known for its tax-saving benefits and no payout is taxed other than equity-related schemes.
3. Insurance will benefit only after your death
No matter when a policyholder dies, whether two months after the policy is purchased or twenty years after the policy is owned, a life insurance company is contractually obligated to pay the death benefit stipulated in the contract.
Other than this, certain life insurance variants like ULIP also allow you to make capital gains on your money. Therefore, insurance not only benefits you after death but also throughout your life. So, make sure you consider getting one earlier in your life.
4. Only the Breadwinner of the family needs insurance
When faced with uncertainty, providing for your family as a breadwinner can seem extremely daunting. We strive to ensure that our family’s financial future is secure because life can throw curveballs when you least expect it.
Several challenges confronted everyone during the global crisis, and many families lost loved ones during the COVID-19 pandemic. For those whose only breadwinner has died, the situation is most depressing.
What’s more interesting is that you can also add your family members or spouse to the same policy through certain insurers without any additional costs involved for a standalone policy. This way, the breadwinner and the rest of the family, both are secured.
5. Only financially well-off people can afford life insurance
Every single person, no matter how poor or rich, should get life insurance for the benefit of their family. This is why there are so many insurance providers offering a wide range of policies in various price ranges for people of all income brackets to choose from so that they have a secure future and sufficient funds to protect them against any emergency.
Low-income, middle-income, and high-income groups are referred to as poor, middle-class, and rich respectively. Here, insurance plans are being considered according to cost and standard of living, along with a financially stable life.
6. Insurance cover from the employer is sufficient
During your employment with the company, your employer’s insurance policy is valid. The policy becomes void the day you leave the company. When you do not have a health insurance policy, you are on your own if you suffer a medical emergency. In addition to the one that you get through your employer, it is a good idea to have a secondary policy.
Older people cannot buy life insurance
Over 60 years of age in India is considered senior citizen status. The definition of senior citizen varies between insurance companies. Some consider people over the age of 50 to be senior citizens, while others use the age of 60 as the benchmark.
Many reasons prevent people from purchasing life insurance until retirement – financial constraints, family obligations, or lack of awareness. For this reason, there are numerous life insurance types serving seniors in India. Senior citizens can avail of these plans that are custom-designed to meet their needs.
7. Young and healthy people do not need life insurance
To take out a life insurance policy, you must be at least 18 years old, but once you reach adulthood, your age should not prevent you from getting coverage. Life insurance is most commonly taken out when a person has financial dependents, like children, as well as adults who depend on you financially, like a spouse or parent. The reason for this is because life insurers determine your premiums based on your chances of dying during the policy term; age is therefore included as a risk factor.
A life insurance policy can be a great investment for your family but you have to make sure that the type of policy you get is convenient and worth it. There are various types of policies to choose from and you must think carefully about which one best fits your needs.