Busting 5 Myths People Believe About Buying Term Insurance

 

We’ve all seen those advertisements on TV. A big family occasion with a loved one being sorely missed. The family reminiscing about their financial prudence and foresight that kept them from ruin.

Life insurance has always seemed like a no-brainer. You do everything possible to fulfil every need and want of your loved ones. So, of course, you want to look after them even after you’re gone. But, it’s surprising to see how many myths about term insurance people believe. Let’s take a moment to separate what’s fact from fiction.

Myth: I must buy term insurance as early in life as possible

One of the enduring myths on buying term insurance begins just as soon as you get your first job.

Yes, there are two advantages to buying policies when you are young:

• Your premiums are low since you are naturally healthier
• The premium amount you start with remains fixed even as you age.

But, life insurance is meant to make things financially easier for your dependents in the event of your death. If you do not have any dependents, who is the policy for? It is preferable to purchase term insurance once you are ready for a family.

Myth: I can simply buy a cover that is 20X my annual salary

The term cover needed by an individual is very specific to their expenses, the number of dependents, short-term and long-term goals, outstanding loans and any future liabilities. While 20 times your salary may seem like a good thumb rule, it may under or overestimate your needs.

The best way to bust this myth about term insurance is to use a trusted term insurance calculator. These calculators account for all of your current and future financial liabilities (education, healthcare, loans, marriage), deduct what you already own or have and arrive at a sensible number that’s tailor-made for your family.

Myth: Riders are awesome; they save time and money

Let’s understand what a term insurance rider is before we dig into this myth. A rider is like an addendum to a life insurance policy. It guarantees the policyholder a supplementary cover under special circumstances. Some examples:

• Accidental death benefit –

  People working in risky professions or those who travel often can get an additional sum if they meet with a fatal accident.

• Critical illness benefit –

  If the policyholder gets diagnosed with a critical illness, they can receive a lump-sum to help them deal with medical expenses.

• Disability benefit –

  If the policyholder has an unfortunate accident that leaves them disabled, a partial amount from the policy can be paid out in instalments.

Sounds enticing, doesn’t it? In reality, this is just one of the many myths on buying term insurance. Riders are usually not comprehensive and, to keep premiums low, leave out many important considerations that specialised health insurance plans take care of. You must compare the rider with what it is intended to replace and ensure that you are getting value for your added premium.

Myth: The cover will reach my family before anyone else

If you have just one take-away from this article, let it be this – This is one of the most dangerous myths about term insurance! Every policyholder wants to feel comforted by the fact that even if they are not around, their family is financially sound with the payout from the term plan.

But, before the amount reaches your family:

• Your creditors like relatives, bank loans, business partners or anyone whom you owe money to gets first right on the money from the payout. 
• In a joint family setup, there could be property disputes that can put the term plan right in the middle of a contested struggle.

If you are married and a male, you MUST sign an addendum while purchasing your life insurance plan – “The Married Women’s Property Act”. If this addendum is present, your insurance plan payout is automatically insulated from all of your assets and cannot be disputed by anyone. It will be paid out directly to your wife and children.

Myth: I should hide my medical conditions, so I can get a lower premium

Not only is this a stupid myth on buying term insurance, but also a worrisome one. Every wise person in your life may have told you never to lie to your doctor or your lawyer. Let’s add term insurance form to the list.

There are umpteen documented cases of insurers finding out about a fraudulent representation of pre-existing conditions applying for the policy. Would you like to guess what happens? The policy is simply thrown out as a case of fraudulent representation and may also get cancelled, regardless of whether premiums were paid. The applicant is the only one who loses out in this scenario.

Always provide accurate details of any known health issues. You may pay a higher premium but can rest easy knowing your family’s future is not at stake.