Term life insurance is the purest and cheapest form of life insurance. However, not many buy it, all thanks to the myths around the term insurance. It is one of the most misunderstood financial products in the market. Because of the mentality of people, there is huge difference between what term insurance is in reality and what is being perceived. Despite being the purest form of life insurance, the product has never been a popular one with people. Primarily due to their sheer lack of understanding about the overall benefits it offers.
The top myths around term life insurance are as follow
Term life insurance are required by married people:
Its not true! Even if you are single, you should have term life insurance for any debts you may have like home loans, auto loans, or even personal loans. Further, you have parents to take care off and should have insurance amount equivalent to the amount of money they require for their retirement. You may, however, choose to steer clear of term plans as long as you do not have financial liabilities or dependents to take care of, and have sufficient funds to take care of any life-altering situations.
Coverage should amount to my present income:
The reality is you should be covered for your future income. A cover of present income won’t be sufficient for your family to sustain beyond a year. Here, how much cover you need is usually a function of what your liabilities are and what your income is. Term insurance runs on the concept of Human Life Value (HLV) which is an estimate of the financial value of your life. The cover you choose should be adequate to replace your current income (inflation adjusted). So that your family can continue to have the same lifestyle and cover any outstanding loans that you may have taken. Typically, your term life insurance cover must be 15X of your income in case you are earning more than Rs 7 lakh per annum. Your contribution towards term plan must be 20X of your annual income if you are earning less than Rs 7 lakh
One cannot buy term life insurance after crossing age of 50 years:
There are term insurance plans that allow you to buy policy till the age of 65. In fact, insurance companies now offer term insurance plans that provide coverage up to the age of 85 yrs. So, yes! You can buy term plan after crossing 50 years mark. However, Its not adviseable to buy term plan after 50, given that you would end up paying a higher premium. A 50 year old man will have to spend around Rs.30000 for Rs.1crore Sum Assured with 20 year tenure. You may, however, opt for it if you have financial liabilities and dependent family members to take care of
Term life insurance plans are expensive:
Term life insurance is the least expensive way to purchase a substantial death benefit basis the cost per lakh which can be as low as Rs.61 per lakh for a 30 year old male. So basically, Rs.1 crore cover for 30 years would cost around Rs.8322 per annum (Bharti AXA Life – eProtect). Term plan is a pooled risk wherein premium is the cost one pays for pooling one’s own risk with that of others via an insurance company and includes the insured’s share of expected claims costs, admin expenses, etc. Click here to check your premium by using term insurance premium calculator.
Povides death benefit only:
Yes,this is common theme of these plans but it may not necessarily be the case as this depends on the insurance plan and add-on covers that you have opted at a time of purchase. There are certain riders that can be bought along with a term plan for additional benefits. For instance, personal accident add-on cover provisions for risks associated with temporary or permanent disability, and a critical illness rider offers one-time lump sum amount towards loss of income due to critical illness.
Lastly, one can buy premium term plan which is more costly than the regular plans. These plans reimburses the entire premium amount paid by you, in case you survive the policy tenure. Hope above information on term insurance helps in debunking most common myths around term insurance