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.

Things you Need to Look into while Reviewing Insurance Documents

Term Insurance (jagoinvestor)

Most of us study an insurance policy beforehand, so that we buy the best term insurance plan or any other type of cover. The first thing we look into is the type of policy. Is it a whole-life cover or a term plan? This is important because each comes with its own unique benefits. Sometimes, you will have options like annuity plans and wealth creation plans as well. So, looking at the type will allow you to decipher its scope and find one that suits you the best.

Reviewing the Document

Once you take into account all the factors and buy the policy you deem is the best term insurance plan, the review does not stop there. You also need to carefully look into the policy document that you get. Study it to ensure that it is exactly what you signed up for. This is because discrepancies might affect your claim amount.

1. Start with the Policy Number: Validate your policy number with the insurance company. This is the reference number that will be linked to your plan in the company’s database. It is using this number that you would need to make referral calls or claims. Make sure to store the policy number via email or on a cloud-based storage option. This will ensure that your plan is easily traceable even if you lose the physical document.

2. Look at the Dates: This is important for a life term insurance policy, especially since such the policy has an expiration date. See if this is the period that you agreed to. If you have taken a whole-life policy, you will have to pay a surrender charge in case you cancel it before a specific period.

3. Premium Terms: The terms of the premium will be mentioned in the policy document. Look at how much you need to pay and how frequently you need to pay. If you used a premium calculator at the time of policy purchase, check if your policy mirrors the figure the calculator quoted. In case you have not understood the terms of premium payment, you can clarify all this with a customer care representative. For instance, you might have opted for a rider. Your policy document must also reflect this. If it doesn’t, you should have it clarified.

4. Insured: You also need to look if the name in the policy is spelled correctly right, else it might be invalid. Also, look at the beneficiaries mentioned. Does it include the dependents you mentioned?

5. Detailed Benefits: Read through the section called Summery of Benefits in your term insurance policy. Look at things like death benefit, additional riders, waiver of premium and other such unique features. Does the policy deed reflect the promised terms?