17 MAR 2016
Top 16 life Insurance Myths
1. I have time, I will invest later
The effect of compounding is of the essence when it comes to long term investments. The early you start, the less you will have to pay and returns will be higher too. The golden rule to follow is P.E.R.L. It means, the investment should be
Purpose (goal oriented), Early, Regular or Long term
A brand new car cannot leave the showroom without valid auto insurance. Same principle should be applied to human life (which is invaluable to your loved ones). Furthermore, a few questions should also be considered. Do you not want to get married in future and raise kids? If yes then why not start saving. What about health related expenses? What about your responsibilities towards your parents? Liabilities towards house and car loan also need to be addressed.
3. I have enough savings I don’t need insurance!
Savings are for fulfilling the dreams of you and your family. It’s good to save but it’s also necessary to be prepared for an unfortunate event because if anything happens to the bread earner who will pay for the dependents who are alive? On one hand the family will be struggling to meet day to day expenses and on the other hand they have to suffer paying your EMIs and other expenses like children’s education.
4. I am as strong as an ox; I have not been ill till now.
Generally a person grows up to stay healthy till the age of 30 years. The decline starts thereafter. It is slow in the initial years but gains momentum in the later years. Being healthy is good, but that is no guarantee of not falling ill.
5. I am a very safe driver
Accidents can happen to anyone, anytime and anywhere. What if the person coming from the other side is a reckless driver?
6. I will not die
Approach someone with a life insurance product and the first question asked is “How much I will get after 20 years?” Though everyone knows that they will die, but they are not ready to come to terms with the eventuality. The question is quite valid but it is the priority that matters. Life insurance is all about risk coverage.
7. I am fully insured
Another answer which an agent gets when is talking of insurance. Most people have no idea about how to plan for their child’s education, marriage, retirement and managing health related expenses. When asked, they may respond saying that they have 5 lakhs or 10 lakhs of insurance. They do not understand the effect of inflation. Insurance is need based product and a detailed need analysis is required to arrive at the correct insurance cover.
8. What is the use of getting money if I am no longer there to enjoy its benefits?
“If I die, the money will be of no use to me. So why should pay premiums?” An approach like this is naïve to say the very least. Who will take care of the family’s day to day expenses? Who will take care of other major expenses like Child’s education and your loans?
9. What is the use of term plan if I do not die?
Term plans offer protection against risks at a very nominal cost. In case a person survives through the period of term plan, he would have earned a lot during this period. Also it is advisable to get a term plan with a longer cover like till age 80.
Mutual funds do not provide risk cover. No riders can be attached. Switching is not possible. The mortality charges in ULIPs are based on sum at risk. That means that as the fund value increases, the sum at risk to the company decreases, which leads to lowering of mortality charges.
11. Private insurance companies are not safe to invest
There are very stringent laws governing the insurance sector. IRDA is the government body regulating the business of all life insurance companies including LIC. Mergers and acquisitions may happen but the policy contract will always be honoured. Also after 3 years of completion of the policy no company can deny claims.
12. Buying insurance is a bad omen
Mostly prevalent in the rural India, many people think that buying life insurance is like inviting death. This myth is prevalent mostly among the illiterate.
13. Only earning members of the family need insurance
No, everyone in the family needs life insurance; and it is a matter of priority. However, the bread earner has to be insured first. Health or a critical illness insurance is another must for the entire family or your spouse.
14. Life insurance is more important than health insurance
These are two different products covering two different needs. You cannot compare apples to oranges.
15. I have group insurance cover offered by my employer
The cover will last only till the time you are employed with the company. In case you switch jobs, the cover will be lost. And in most cases, the maximum cover per employee might not be sufficient to one’s personal insurance needs.
Moreover, buying insurance at an older age will attract higher premium.
16. Pleasing friends/relatives who are insurance agents is important
Insurance is a need based product and should not be brought because a friend or relative is an insurance agent. Identification of the need and comparison of products and prices is also important. Online term insurance is 50% cheaper than those brought through agents or brokers.
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