Life Insurance Myths

As a financial instrument, insurance is vital to your financial planning. There are several misconceptions about life insurance products that hinder the efforts of the industry to provide adequate financial protection to people against unexpected events. The insurance industry has implemented various measures to increase insurance penetration, but these misconceptions remain a major obstacle.
Every time a myth gets popular, a section of people remain uninsured or underinsured. Such myths about insurance may seem illogical most of the time, but people tend to believe them, especially if they come from a trusted source. Hence, it becomes imperative that these life insurance myths are debunked.

What are the different insurance myths?

Customers are always advised to make informed decisions before considering insurance needs for their families. Here are common life insurance myths that you may have heard:

Insurance is for saving tax

Yes, this is one of the popular life insurance myths. While insurance products have added tax-saving benefits, saving tax is not the primary goal of life insurance.
You need to remember that you can claim a tax deduction on the premium paid under Section 80C of the Income Tax Act, 1961, of up to Rs 1.5 lakhs. However, life insurance is a financial cover that comes in handy for your family after your passing.
In your absence, life insurance payouts, i.e., the death benefit, can cover the financial needs of your dependents. On the other hand, the maturity benefit from life insurance products also can act as a corpus to further many future aspirations and dreams.

Insurance will benefit only after my death

A lack of understanding about life insurance has led to the above myth. Certain life insurance products can offer a death benefit and maturity benefit.
This depends on the type of life insurance plan selected and its specific features. Retirement life insurance plans help you gain financial independence during retirement when the constant flow of income from your salary has stopped.
Endowment life insurance plans help build financial corpus and asset-building. Pure term insurance is the only product where the death benefit helps your nominee/heir. A critical illness rider in term insurance provides lifelong benefits, covering you for critical illnesses during your lifetime.

My group insurance is adequate

Many corporate employees get financial coverage from group policies, leading to the emergence of such a life insurance myth. Given the dynamic job situation, corporate employees must realise that such group covers may not exist if a job change occurs.
Once you change your job, your group insurance policy will automatically get cancelled. Thus, you will not get any insurance benefits in such a situation. Hence, taking insurance other than the cover offered by your employer is always advisable.
Misconceptions about life insurance can result in under-insurance, leaving you vulnerable to financial hardship in the event of an unexpected occurrence.

Only the Breadwinner of the family needs insurance

Though it is believed that a life insurance policy is only for the breadwinner of the family, that is not the case. Every family member may need insurance coverage, irrespective of their current role in the household.The breadwinner shoulders a lot of responsibility at one point in time. As the work profile changes and the age of the breadwinner advances, others from the family will also come into focus.

I am single and do not have any dependents; therefore I do not need any coverage

A misfortune can befall anyone. A single person may not need a life insurance policy immediately, but they will certainly need a policy to take care of health and retirement worries. Plus, when you are young and single. Hence, getting an insurance policy early on may be more beneficial.

Young and healthy people do not need life insurance

Life is replete with numerous uncertainties. An accident may happen to a young person when they are in prime health. Without proper financial coverage, your young family may be left in a bad situation if there is no insurance. As a young person, your income level may be lower. Pure savings alone may not be sufficient to build a large enough corpus for your family's needs if, unfortunately, you are no more. The best time to buy insurance is when you are healthy and young, as premiums are much lower.

Only financially well-off people can afford life insurance

It is a myth that only the wealthy need life cover. Insurance policies offer a wide range of coverage at reasonable price points to suit everyone’s needs. Start with a low sum assured and then build up more coverage as your income and capacity to pay more premiums increases. For instance, Rs 1 crore term life plans tend to provide a large sum assured for a low premium. Salaried people can afford this premium amount. Hence, to say that only the financially well-off can afford life insurance is misleading.

My Company Covers Me, So I Do Not Need Another Policy

Relying only on one policy is a foolhardy decision. Insurance covers provided by your company are available but linked to certain conditions. The scenario can change, and so will the policy coverage.
Typical employer policies are not customised and may be grossly inadequate. Companies buy group policies in bulk and distribute them among many employees, thus giving small coverage. Hence, take your own policy, which can cover expenses for 10-20 years of annual income adjusted for inflation. Remember that you can opt for another policy, especially if you think you are underinsured.

Life Insurance is Expensive

This statement is false. Such life insurance myths cause a lot of harm because many think life insurance is expensive. You can pay a monthly life insurance premium for a standard coffee at an outlet. Your insurance premium depends on many factors, including your age, occupation, place of residency, medical history, coverage, etc.

Older people cannot buy life insurance

Insurance companies offer insurance plans that older people can purchase. Some retirement plans and most annuity products help generate income for senior citizens. Whole life insurance plans give coverage to older adults for their entire life. In this way, life insurance products cover older people in various ways.
Often, the scope of coverage extends well beyond the policyholder and covers their immediate family just as any normal insurance policy would. So, the next time you hear such myths about insurance, ignore them and make informed decisions for yourself.