Term Insurance Myths Busted
Insurance is one of the lesser understood sectors, where personal finance is concerned. Since insurance coverage in India remains quite low, there are some misconceptions among consumers regarding term insurance. First, what is a term insurance policy?
Term insurance in India provides a sum assured on the death of the insured; although there is no payout at the maturity of the product, since these are pure insurance products. There is no upper limit on the sum assured; the premium you pay is calculated based on the sum assured you opt for.
Term Insurance Demystified
Myth: Term insurance is a waste of money.
Fact: Term insurance is meant to provide protection against death only. For a very nominal sum, you can purchase a large insurance cover. In fact, the cost in terms of premium per rupee of protection is the lowest for term insurance.
Let us look at it from another angle. The cost of term insurance is very low. If you were to take the amount of premium you pay for this type of policy, and invest it in savings, the return you get would cover just a few months of expenses on retirement. In comparison, the cost of leaving your family unprotected in the event of your untimely demise would be incalculable. It is, therefore, far better to pay the premium for the best term insurance plan available rather than consider it as money wasted.
Myth: I am too young to worry about insurance.
Fact: Actually, the younger you are, the lower the premium you have to pay for a given sum assured. It makes good financial sense to purchase the best term insurance you can find when you are young; you may not have any dependents now, but you can always change the nomination details once you get married and have a spouse and children. Your family (and that of your spouse) will thank you for being so thoughtful at such an early age!
Myth: Life insurance is for saving taxes.
Fact: Since there are tax-saving life insurance plans available, you may think that it makes sense to buy such a plan; you save taxes, get protection, and also get some return. But at what cost? The management charges of life insurance products are much higher than those for mutual funds. Also, other equity mutual funds or the PPF may provide better tax and investment benefits. Term plans are a better bet for insurance protection.
Insurance is one of the lesser understood sectors, where personal finance is concerned. Since insurance coverage in India remains quite low, there are some misconceptions among consumers regarding term insurance. First, what is a term insurance policy?
Term insurance in India provides a sum assured on the death of the insured; although there is no payout at the maturity of the product, since these are pure insurance products. There is no upper limit on the sum assured; the premium you pay is calculated based on the sum assured you opt for.
Term Insurance Demystified
Myth: Term insurance is a waste of money.
Fact: Term insurance is meant to provide protection against death only. For a very nominal sum, you can purchase a large insurance cover. In fact, the cost in terms of premium per rupee of protection is the lowest for term insurance.
Let us look at it from another angle. The cost of term insurance is very low. If you were to take the amount of premium you pay for this type of policy, and invest it in savings, the return you get would cover just a few months of expenses on retirement. In comparison, the cost of leaving your family unprotected in the event of your untimely demise would be incalculable. It is, therefore, far better to pay the premium for the best term insurance plan available rather than consider it as money wasted.
Myth: I am too young to worry about insurance.
Fact: Actually, the younger you are, the lower the premium you have to pay for a given sum assured. It makes good financial sense to purchase the best term insurance you can find when you are young; you may not have any dependents now, but you can always change the nomination details once you get married and have a spouse and children. Your family (and that of your spouse) will thank you for being so thoughtful at such an early age!
Myth: Life insurance is for saving taxes.
Fact: Since there are tax-saving life insurance plans available, you may think that it makes sense to buy such a plan; you save taxes, get protection, and also get some return. But at what cost? The management charges of life insurance products are much higher than those for mutual funds. Also, other equity mutual funds or the PPF may provide better tax and investment benefits. Term plans are a better bet for insurance protection.
