Planning for a contingency or emergency is an important component of financial planning. By debunking a few insurance myths, K. Ramalingam, chief financial planner at Holistic Investment, a financial planning and wealth management company, aids you in making better financial decisions.
Myth I: Life insurance is a waste of money
Life insurance is bought to protect our families from the contingency of untimely death. It would take care of the living expenses of your family if you were to die unexpectedly. Life insurance is an investment that is more of a safety mechanism; it is to provide financial security to the dependants. Term policies that cover the risk of untimely death are cheap and most ideal for providing life coverage. Paying a premium to cover the full financial needs of the family in case of the death of the bread earner is very important. The cover should be for about 7 to 10 times the annual income of the bread-earner.
Myth II: Life insurance is for saving taxes
Life insurance should never be bought with the intention of saving tax. Tax saving is just one of the benefits that come along with it. The main benefit is the provision of finances in the case of the death of the policy holder.
Taxes can be saved with other tax-saving instruments such as equity linked saving schemes, tax-saving bonds and government bonds, post-office savings schemes and Public Provident Fund.
Myth III: You only need life insurance when you are old
This is a wrong notion. Yes, most people die when they are old is true to a large extent. But having the risk of death covered is definitely better than leaving dependants to deal with an untimely death. Besides, it is smart to take benefit of the lower premium rates offered to the young. Individuals may find it difficult to take life insurance when they are old due to higher premium rates or being refused because of ill-health.
Myth IV: Life and medical covers are provided by employers
These covers are available only until you are in a particular company or until you retire. Also, the insured amount may not adequately cover the living expenses of your family in case of your untimely death.
It is advisable to buy your own medical insurance when you are young, as fresh medical insurance, taken just prior to retirement, could be refused on medical grounds.
MYTH V: Ulips for a limited period seem attractive
Most insurance products are so designed that the major costs are incurred in the first few years and deducted from the premium. These are charges that the company wishes to recover over the entire tenure of the policy. So not much of your investment is actually invested. It is, therefore, best to look at unit-linked insurance plans with an open mind and consider a commitment of periodic investment for the whole tenure of the insurance policy. Paying for a longer tenure could result in a more profitable proposition.
MYTH VI: It’s best to buy a policy in the name of a minor
The premium paid on child policies may be much less than on a policy for an adult wanting the same coverage. However, it does not serve any purpose. A life insurance policy is taken to make good the loss of income to the family. Taking a policy with the child as a beneficiary or nominee may be a smarter thing to do.
MYTH VII: Pleasing relatives/associates is important
Avoid taking policies just for the sake of satisfying your friends and relatives who are insurance agents. Also, you need to avoid taking policies just to maintain relationships with business associates like bankers. Insurance policies should be taken based on your need. Worth noting is that online term insurance plans are 50% cheaper when compared with those sold through agents or brokers.
