Among all the life insurance products, term life insurance is the most simple and essential. And although it has been gaining popularity, there are still many misconceptions about term life insurance, especially about what they are and why we need them.
In this blog we will talk about the 8 most popular myths associated with term life insurance versus the actual facts.
And, here’s how we debunk the 8 term life insurance myths
#Myth 1: Rs 1 crore term life insurance cover is enough
For term life insurance, the number Rs 1 crore has been well marketed. Hence, often we opt for this amount while buying a plan as we assume to be enough coverage.
Reality: Though this eight figure number sounds big and convincing, it’s a random number without any math behind it.
Now, calculating your term insurance coverage should be done in a more scientific manner. And for this, first account for your monthly expenses (it should be 15 times of your current expenses), liabilities, important goals and life events, and a retirement corpus (if married) for your spouse. Now considering all these factors calculate the amount your family would need when you are not there.
In the second step, if you have any existing wealth (mutual funds, FD, PF etc) deduct that amount from the amount needed. The balance is the coverage that you would need as term life insurance.
#Myth 2: Term life insurance plan are restricted to death benefits, hence its a waste of money
Often we consider term life insurance as a waste of money as it does not provide any lumpsum amount at maturity other life insurance products available in the market.
Reality: Just because term life insurance plans do not provide a lump sum amount at maturity, does not mean that they are a waste of money. Think what will happen to your family if you were to meet with an untimely death? That’s where the importance of term insurance comes into play. If you have calculated the coverage amount correctly, the money that the insurance company will pay your family will ensure they do not have to go through financial difficulty when you are not there.
#Myth 3: I am single, hence I do not need a term plan
Term life insurance is often considered as a product that you buy at a later stage in life, that is when you get married and start a family.
Reality: It is a complete misconception that if you are not married or don’t have children you do not need term insurance. Suppose you have a home loan or car loan or even student loan, you definitely don’t expect your family to bear the debt burden in case of any eventuality, right? Moreover, if your parents are dependent on you, how will they manage their expenses in case of your untimely demise?
In such cases, the coverage amount for life term insurance might be less as compared to someone who is married and has children; but that does not mean there is no need at all.
#Myth 4: Term life insurance plans are expensive
It is often assumed term life insurance is more expensive than other life insurance products available in the market.
Reality: Now, nothing can be more untrue. The truth is term life insurance policies offer a high coverage for low premium amounts as compared to other life insurance policies.
The total coverage for traditional policies available in the market like ULIP, endowment policy, money back policy etc is mostly 10 percent of their yearly premium amount. For example, on buying one of these plans, for a yearly premium amount of Rs 20,000, the coverage amount would be Rs 2 lakh. This is a measly amount compared to the needs of your family incase of your untimely demise. In comparison, term life insurance provides a much higher sum assured incase of the death of the policyholder during the policy tenure for a similar premium amount. At ETMONEY, a term life insurance cover of Rs 1 crore comes at a yearly cost of only Rs 10,000 to 17,000.
#Myth 5: The claims for term life insurance plans often get rejected
I buy a term plan, pay a premium amount regularly without expecting any maturity benefit, and if I die the claim gets rejected. Why should I buy such a plan anyway?
Reality: As per the recently released IRDA’s annual report, the average death claim settlement ratio of insurance companies ranges between 85.3-99.07 percent for the last financial year. So that means, for every 100 policies, a maximum of 15 got rejected, which isn’t a big rejection rate.
#Myth 6: My company has a group life insurance policy, I do not need to buy another one
Some companies do provide group life insurance coverage to their employees. And in such cases, we often consider it to be enough ignoring the importance of having an independent term policy.
Reality: As much as being covered under your employer’s group insurance policy can bring you peace of mind, but have you checked the coverage amount? Would that money be enough for your family to get through the tough years ahead, if you are not there? Also, what if you want to switch jobs, and your next company does not offer such benefits? – did you consider these facts?
Even if you are covered under group life insurance policy provided by your employer, it is always wise to get term life insurance policy of your own.
#Myth 7: All term life insurance plans are same, they cannot be customised
There is a fixed notion, all term plans have only one single feature – in case the policyholder dies during the policy tenure, the insurance company will pay the sum assured to his/her family. And, they cannot be customised as per our needs.
Reality: In this world of growing competition nothing can remain the same for a long time, then why term plan will be any exception.
Today, term insurance plans offered by any insurance companies can be customised as per your needs. You can add riders like accidental death, critical illnesses etc. to your term plan to get more benefit. Plus if you are not convinced of buying a pure term plan, you can go for return of premium option, increasing or decreasing term life insurance plan, convertible term life insurance etc.
Contrary to popular belief, the choices and options are too many today.
#Myth 8: Buying term life insurance process is lengthy
Often people are hesitant to buy term life insurance only because the process of buying them through an offline channel is quite lengthy. It requires one to fill up several forms and submit various documents.
Realily: With term life insurance plans being available online, buying a term life insurance plan is a matter of a few clicks. For example, for buying a term life insurance plan through the ETMONEY app, all you have to do is answer a few relevant questions – like your age, whether you are a smoker etc., then compare between different plans and push the buy button. It’s as simple as that!
Term life insurance is a pure life cover, that provides you high coverage for a low premium. So ignore all the misconceptions around it, like it’s a waste of money, I am single or too old etc. Get a term life insurance today with only one thought in mind – getting one will ensure my family will not have to go through financial hardship if I am not there!