We have been inclined to be financially intelligent and always seek a tangible return benefit if we spend money anywhere, even if it is for safety. However, there are few things that carry far more importance in life than they seem to, term insurance plan being one of them. A lot of us find one or the other excuse to wiggle out of this responsibility, at times for all the wrong reasons.
Here we address seven of such common myths about term insurance plans, which investors doubt are true, but can never be far from the truth:
- It is just an Expense
Term insurance plan is usually considered just an expense by many, as there is no maturity benefit attached to it. The question customers ask is that, if anything happens to me, my family gets the money, but if I survive all the premiums will be lost?
In reality, buying a life insurance plan with maturity benefits also cost you the same, or may be more. Let us look at the comparative table:
|Particulars||Term Insurance Plan||Traditional Money Back Plan|
|Age of Insured||30 Yrs.||30 Yrs.|
|Sum Insured||Rs. 10 Lakh||Rs. 10 Lakh|
|Maturity Benefit||Nil||Rs. 10 Lakh|
|Annual Premium Payable||Rs. 9,253*||Rs. 50,000|
|* Includes Accidental Death, Disability, and Critical Illness Riders|
Even though Money Back plans are good at keeping your money safe and growing it with bonuses and guaranteed additions, the cost of life cover is included in the premium. Also, buying adequate life cover (i.e. Rs. 1 crore) for your family’s financial security is not possible with a money back guarantee plan. However, you can ensure adequate financial safety for your family and money both by combining a Money Back Investment (of Rs. 10 Lakh at Rs. 50,000 p.a.) with a Term Insurance Plan (of Rs. 1 crore at Rs. 30,000).
- Tax Saving is the Only Good Purpose for Term Life Cover
Rather, tax-saving is the unintended benefit of term insurance cover. For most a term insurance premium does not provide a good amount of tax benefit, but it does provide adequate financial protection for the family, in case anything happens to the insured.
- I am covered by Employer’s Term Cover for Free
Employer’s group term insurance cover is free no-doubt in most cases. However, there are few limitations that underline the importance of a separate term cover:
- It may not be adequate: Even if you have a group term insurance of Rs. 25 Lakh from your employer, it is still insufficient amount for your family to look after their needs and meet their goals. Especially if you are in the initial decade of your career; i.e. between 25 to 35 years of age.
- You have no control over the conditions: Your employer buys group term plans, to suite their terms and conditions and mostly employees do not have a say in it. For example: unless you get a promotion or a pay hike, your insurance cover remains the same, regardless of your life stage; i.e. getting married, having a child, etc.
- It is only Valid till You Are Employed: Group Term Life Cover, like most other employee benefit schemes, is only valid till the time you are with the employer. If there happens to be a gap between your employment, it will leave your family vulnerable without a life cover for you in place.
4. I do not have any dependents; I do not Need Term Insurance Plan
Term Life Insurance premiums increase fast with age, and it is not only a lot cheaper to buy the plan early it also supports your future family, whenever that happens. It is much easier, and again far less expensive to increase your existing term life cover than getting a new term cover with a large sum assured.
- I have So many Assets they will be enough for the Family After Me
Assets like real estate, gold, fixed deposits, stocks, etc. do not offer the kind of liquidity that will be needed in case of an emergency. So, unless you have kept most of your wealth in a savings account, it is recommended that you keep a term insurance plan ready. Additionally, you need to keep in mind that maintaining and managing the assets to generate income also requires some liquidity.
- Insurer’s Don’t Pay Claims for Online Term Plans
Insurers usually only refrain from paying claims immediately, if they find something amiss with the claim application. Also, you can check the claim settlement ratio for the insurer before buying the policy. This ratio shows the percentage of claims settled in the same financial year as they were filed. Usually, a ratio of 95% and upwards is considered good.
The insurance contract is based on the principle of ‘utmost good faith.’ Meaning the proposer needs to reveal all the relevant information to the insurer at the time of signing the contract. Hiding such information, like a health issue, a critical disease or family history can leave the contract void, and the insurer may refuse to honour the claim.
This perception may also stem from the fact that online term covers are much cheaper than the offline term covers or traditional plans. However, this is because of the commission expenses which are not present in an online term plan, and the benefit passed on to the consumers.
- Term Insurance Will Benefit Only in Case of Death
A standard term life Insurance cover will pay the sum assured to the nominee only in the case of death of the insured. However, additional covers, like accidental death, disability, and critical illness covers can be added to the policy at a very nominal price.
Some insurers, like ICICI Prudential Life, offer these additional covers with a choice of pay-out modes, which make it even easier for the family members to continue their livelihood in case anything happens to you.
When you understand the full picture of the term insurance plans as an investment, you will be able to appreciate your choice of buying one. You should compare and select the best term insurance plan for securing your family’s future financially by comparing them on the features discussed in the article.