Most people look at insurance as something that helps them reduce taxes and save for future. Unfortunately, these are secondary benefits of insurance and not the primary reason why it should be bought.
Insurance is bought to provide financial security to dependents in case of death of the policyholder. It should be large enough to provide income replacement of the policyholder and help clear off all outstanding debts. But when it comes to insurance, there are many more myths that people believe in. Lets see the reality behind some of these myths.
A very big myth doing rounds is that life insurance is costly. The main reason behind this belief is that people think of survival benefit plans (like endowment, money-back, etc.), when they want to buy insurance. These are of course costly as these are products with dual benefit of insurance and savings. But one can easily buy insurance policies with large enough covers at very low prices, if one goes for plain term plans. A plan with insurance cover of Rs 50 lac just costs about Rs 6,000 a year! So it’s not that costly after all.
Now the young and single believe that they don’t need any life insurance cover as the product is mainly marketed for its importance for those with families. But it must be noted that at young age, insurance policies are more economical since premiums are low for low-age groups. Premiums tend to grow higher later in life as the life expectancy risks increase with age. More importantly, this cover can be extended to the family when one starts it in future.
Working professionals are also plagued by a myth that the insurance provided by their employer is enough for them. Unfortunately, if the job is discontinued or the person retires, they will lose their insurance covers. And since premiums are very high at later stage of life, it can be very costly to buy sufficient coverage later on.
These are some of the myths that people have and that cause a lot of harm to people’s financial lives. So sooner these are busted and necessary actions taken, better it is.