Before starting an investment journey, one should take adequate insurance cover to ensure that the investment journey doesn’t get interrupted by any unforeseen eventualities resulting in huge financial losses. So, the basic of a financial plan is to take insurance cover to protect the investments.
“When it comes to financial planning and opting for Life Insurance, there are lots of myths out there. But it is very hard to figure out what’s true and what isn’t. People try to make general estimates to determine the kind of policy and the amount of coverage one needs and at times believe that at a certain stage they do not need Life Insurance at all. However, it is important to know that in insurance there is no one-size-fits-all model. There is no thumb-rule to buying life insurance and it largely depends on the individual and his/her family’s financial goals, income profile and risk appetite,” said Anil Kumar Singh, Chief Actuarial Officer, Aditya Birla Sun Life Insurance Company Ltd.
“In your search for the right policy, it is important to understand the truth behind some common misconceptions on life insurance,” he added.
Singh lists the following six common misconceptions about life insurance:
1. Life Insurance is expensive
The cost of life insurance, often referred to as the premium depends upon several factions including the age of the life to be insured, current health status and any pre-existing medical conditions. Insurance premiums are inversely proportional to life expectancy, i.e. premium increases as life expectancy decreases or more simply put, the older you get, the more life insurance is going to cost you. Today, there are multiple options available for individuals to invest in life insurance. Policies can even be customised to suit individual needs and budgets. All these help in getting the desired insurance at a comfortable premium. Most importantly, life insurance must be treated as an investment for protection and not an expense, as one can be assured that the family will be taken care of in case of unfortunate death or any other unforeseen conditions.
2. Not everyone needs a life insurance cover, especially young people
It is a common myth that life insurance is not a required financial instrument for young people. Although the main premise of life insurance is to provide financial security to the insured and their family, it is also a product that one must buy before you foresee an obvious need. That appropriate time to purchase life insurance is when one is young and healthy. Delays might harm the prospects of getting insurance at the desired price. Deterioration in health conditions or the occurrence of unforeseen situations could make the insurance plan expensive. It is important to start early and start smart.
3. The duty of the insured is completed once a Life Insurance policy has been purchased
Individuals tend to buy life insurance and forget about it. It is necessary that individuals keep assessing their protection needs at every life stage and remain abreast with trends that might have a direct impact on life insurance policies. Things change over time and so do the benefits of life insurance. Newer and more innovative solutions may come up that better meet individual requirements. Once can explore the possibility of a top-up to the existing policy.
4. Life insurance is for paying off debts
With changing lifestyle aspirations and large expenses such as home-loans, education loans and other such debts, life insurance is increasingly sought as a safeguard against debts. Life insurance is not only about paying debts. It is in fact necessary to minimize debts to realise the returns from life insurance. When calculating life insurance requirements, one must consider both existing debts and other future financial requirements for the family. In this way you can clear the debts and also secure enough money for the family’s future.
5. Term life insurance coverage from the employer is enough
This may sometimes be the case, but most often cover provided by employers is simply not enough to take care of your family’s needs. Some employers offer limited cover like covering death through accident and not illness, etc. It is important to review the policy and benefits in detail and evaluate the available choices keeping the bigger picture in mind.
6. Life insurance policy only benefits in the eventuality of death or post the term ends
Life insurance policies offer a number of living benefits including the ability to access the policy’s cash value through withdrawals or tax-free loans for other needs, such as funding your child’s education, a hard-earned retirement income or other lifelong savings needs. Therefore, it serves as long term financial protection not only during an unforeseen or catastrophic situation but also as a savings when in need.
“While some myths are benign and do us no harm, that is not necessarily true of those myths that relate to our personal finances. Life insurance is a simple product and a comprehensive solution for protection once you overcome these myths,” said Singh.