Misconceptions surrounding life insurance products dissuade people from considering them as vital instruments of financial planning. However, life insurance is an essential financial contingency plan that protects your loved ones against a shortage of funds in the future. It can also act as a source of earnings after retirement or if accidents or ailments affect your income. Here are the clarifications of some common myths surrounding life insurance so that you can get a comprehensive understanding of its benefits.
Myth 1: Life insurance is only for tax savings
Tax deduction under Section 80C^^ is not the only advantage of life insurance. In your absence, the payout from your life insurance will also cover the monetary needs of those who are dependent on you. The maturity benefits from your insurance product can act as a corpus for many future financial goals.
Myth 2: Life insurance will be useful only after the policyholder’s death
Depending on the type of life insurance plan selected and the specific features, apart from providing a financial safety net to your loved ones, life insurance plans can be useful in other situations as well. Retirement plans help you enjoy financial independence in the later years of your life. Term insurance plans with critical illness riders help meet the exorbitant expenses of medical treatments. You can also utilize endowment plans as asset-building tools. Not only your nominee, but you also can profit from a timely investment in the right life insurance product.
Myth 3: Young and healthy people do not need life insurance
Life is full of uncertainties. Accidents can snuff out the life of even a young person at the peak of health. In the early stages of your career, you do not have the chance to accumulate a large corpus through savings alone. But life insurance ensures your family does not face a lack of funds. Moreover, young people have to bear a lower cost of a premium compared to what they would have to pay when they are older. The best time to buy life insurance is at a younger age when you start earning. This way, you can get substantial coverage at a lower cost.
Myth 4: Only financially well-off people can afford life insurance
Insurance policies today offer extensive coverage at reasonable prices. You can research online for customized plans that suit every budget. You can start with a lower sum assured and then build up additional coverage as your income increases. You can also opt for a term life plan. Term insurance typically provides a large sum assured for a low premium.
Myth 5: Insurance cover from the employer is sufficient
Insurance covers provided by employers are available only until you remain in their service. If you change jobs or retire, your policy may be terminated. Moreover, the life-cover that your employer offers may not be sufficient for your family’s future needs. It is recommended to have a life insurance cover of at least ten times your annual income. You must also factor in inflation. Consequently, investing in an insurance policy privately can prove much more advantageous in the long run.
Myth 6: Payout will be denied or will be taxed
Look into the claim settlement ratio (CSR) and solvency ratio of your insurance provider before you purchase a policy. Higher ratios provide better assurance that the company will meet the claims of their customers. It is advisable to select an insurance company that has a longstanding CSR of over 95%. This value indicates that the company settles at least 95 out of 100 claims and is, thus, reliable. You can check the CSR of the insurance provider on IRDAI’s website. In addition to this, you must also disclose all your medical conditions at the time of filling up your proposal form. It will prevent your nominee’s claim from being refuted later.
Under the 1961 Income Tax Act^^, death benefits from life insurance products are not taxable if the beneficiary receives no added interest on the payout.
Myth 7: Older people cannot buy life insurance
Many companies offer plans that even older people can purchase. Retirement plans provide financial independence to seniors even after their salary stops. They can deposit a lump sum amount into an Immediate Annuity Plan and start getting their pension immediately. Their spouse can continue receiving the pension after their demise. Senior citizens can also buy whole life insurance plans and get coverage for their entire life. Their loved ones will receive death benefits when they are not around. They can, thus, ensure their family or spouse remains financially secure at all times.
Myth 8: Getting life insurance is troublesome
The internet has simplified every aspect of life today, including purchasing insurance. You need not depend on agents or wait for appointments from your insurer. After you compare insurers online, all you need to do is visit the web portal of the insurance provider of your choice. You can calculate the premium that you have to pay using online calculators. Then you have to answer some straightforward questions about your health conditions as well as your personal preferences and profession. After that, you can upload your KYC documents and securely make an online payment to buy your term insurance easily from the comfort of your home.
To sum it up
It is crucial to assess your family’s financial requirements carefully and research online for the insurance policy that suits your needs. Do not fall for these myths. Remember that regardless of your age or savings, keeping your family protected with life insurance is always a wise choice.
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^^ Tax benefits under the policy are subject to conditions under Section 80C, 80D, 10(10D) and other provisions of the Income Tax Act, 1961. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for details, before acting on above.