Ah, insurance—one of the most misunderstood financial instruments out there. People often have preconceived notions about insurance policies that are far from reality. These misconceptions can sometimes prevent individuals from making decisions that could benefit them. In this article, we’ll debunk some of the most common myths surrounding insurance policies, especially life insurance. So, let’s clear the air, shall we?
Myth 1: Life Insurance is Expensive
Reality: There are options for every budget
A common misconception is that life insurance is expensive and only the well-off can afford it. This notion often stems from a lack of awareness about the options available, offering unique life insurance benefits. The market has a wide range of life insurance policies for various financial capacities and needs. For instance, term life insurance plans are designed to provide high coverage at minimal premiums. These plans offer a valuable life insurance benefit without straining your finances. These plans are good for young families who may not have a lot of disposable income but still wish to secure their loved one’s future.
Myth 2: Young People Don’t Need Life Insurance
Reality: The Sooner, the Better
The idea that life insurance is only for older adults is not only misguided but also potentially risky. Young people often think they’re invincible, believing nothing bad can happen to them. While it’s natural to feel this way, life is unpredictable. Unfortunate events can happen to anyone, regardless of age.
There’s a financial advantage to buying life insurance at a younger age as well. Insurance premiums are calculated based on several factors, one of which is age. The younger you are when you buy an insurance policy, the lower your premiums will be. This is because younger individuals are typically considered lower risk than older individuals who are likely to have health issues.
Myth 3: Your Work Insurance is Sufficient
Reality: Think Beyond Employment
It’s easy to fall into the comfort zone of relying solely on insurance provided by your employer. This type of insurance is often seen as a perk or bonus, making it tempting to believe that you’re fully covered. But if you dig deeper, you will know that employer-based insurance policies generally offer a basic level of coverage. These plans may not meet all your needs, especially if you have dependents. There are a couple of things to note here. First, the sum assured is often a multiple of your salary and may not be enough to cover all the expenses that your family would incur in your absence. Second, these policies usually don’t offer the flexibility to add riders or benefits that can enhance your coverage. For example, a critical illness rider could be a lifesaver in situations involving long-term medical treatment.
Myth 4: Only the Breadwinner Needs Coverage
Reality: Financial Gaps Affect Everyone
The traditional notion that only the primary breadwinner should be insured is no longer relevant in today’s complex family structures. In many households, both partners contribute financially, and even if one is not earning, their contribution to the family is invaluable and irreplaceable.
For example, consider the role of a stay-at-home parent. While they may not bring in a paycheck, their contribution to childcare, home maintenance, and other domestic responsibilities is immense. If something were to happen to them, the surviving partner would likely need to hire help for these tasks, which would be a significant financial burden. In some cases, the working partner may even need to reduce their working hours to take on additional household responsibilities, leading to a decrease in income.
Myth 5: Life Insurance is Only for Death Benefits
Reality: Life Insurance has Other Benefits
When people think about life insurance, they often zero in on the death benefits. Yes, the core purpose of life insurance is to provide financial security for your loved ones in case something happens to you. But that’s not all. Modern life insurance policies offer much more than just a lump sum payout upon death. For instance, many types of permanent life insurance policies, such as whole or universal life, include a feature known as cash value accumulation. This is a savings-like account within your policy that grows over time, often at a guaranteed rate. You can tap into this cash value later in life for any number of reasons—be it an emergency, an investment opportunity, or even a well-deserved vacation.
You also get tax deductions of up to ₹1.5 lakh on insurance premium payments. This way you pay less tax and save more money. Win-win!
Insurance policies, particularly life insurance, are versatile financial instruments designed to offer security and peace of mind. Now that you know how you can benefit from a life insurance policy, you can make an informed decision about the type of insurance that’s right for you and your family. So, next time you hear someone say, “Life insurance is just a waste of money,” you’ll have all the facts to prove them wrong.