Term insurance policies provide pure life cover and are designed to secure your family financially in the case of the untimely death of the insured or an eventuality. While term insurance policies are quite advantageous and cost-effective, there are certain misconceptions due to which insurance buyers shy away from investing in them.
Let’s have a look at some of the most common myths about term insurance versus the facts.
Myth 1: You cannot increase the coverage of a term insurance policy
Reality: You can increase the cover of your term insurance as per your growing income and changing life responsibilities. Increasing term insurance is a type of term plan that allows you to increase the policy coverage at pre-defined intervals in the future. Premiums in an increasing term policy might remain constant or change throughout the policy tenure, depending on the specifics of the policy you choose to purchase. People in their twenties or early thirties should especially consider investing in such a policy so that they can increase the sum assured during important milestones and growing responsibilities, such as marriage, the birth of the first child, and so on.
Myth 2: Term plans are useful only after the policyholder’s demise
Reality: You can buy term insurance with a Return of Premium (TROP) that offers payouts if the policyholder survives the policy term. In this, the premiums paid during the policy term are returned to the policyholder. One may even opt to add riders to any term insurance policy that provides policyholders with financial protection in particular incidents. Critical illness benefit rider, for example, provides you with a lump sum payout in case you are diagnosed with specific critical illnesses. This payout can be used to pay for your treatment. Another major benefit of term insurance policies is that it allows you to get a tax deduction of up to ₹ 1.5 lakhs on premiums paid under Section 80C of the Income Tax (IT) Act, 1961.
Myth 3: ₹ 1 crore term life insurance cover is enough.
Reality: Even though this eight-figure number does sound convincing, it is just a random number without any math behind it. The amount of term life insurance cover needed would differ from one person to another, depending on their financial liabilities and responsibilities. It should be calculated more systematically, ideally with the help of a term plan calculator.
The three most popular methods for calculating the ideal term life insurance coverage are:
- Income replacement method: This method works on the principle that the sum assured under your policy must be adequate enough to replace your income in case of your demise. The income replacement value is calculated as the product of the number of working years left and your current annual income.
- Expense-oriented method: For this approach, you need to get the sum total of your everyday expenses, loans, debts, cost of taking care of dependents, children’s education, and so on. The insurance coverage amount would imply the financial safety net needed by your family.
- Human Life Value Method: Such a method takes several factors into account, like liabilities, expenses, income and future goals to identify the ideal term insurance coverage amount required. It also accounts for inflation and therefore is a pretty accurate method for computing the amount of coverage your family may need.
Myth 4: I don’t have to invest in term insurance if I am young and healthy
Reality: Term insurance is about planning ahead for the future. If you are a young professional who is employed and earning well, your family might depend on your earnings. If something untoward were to happen to you, there would be no one to earn a living. This loss of income can create a financial strain on your family. You should especially consider investing in a term plan if you have any debts, such as a home loan or car loan, so that your family doesn’t get burdened with it in case of an exigency. Moreover, you can buy expensive insurance coverage at a young age at budget-friendly rates, as premiums for younger people tend to be lower.
Myth 5: Buying term insurance is a time-consuming and complex process
Reality: In this digital age, you can invest in term insurance plans online right from the comfort of your home. You simply have to visit the website of a reputed financial institution offering such policies online, fill up the application form, and pay the premiums digitally. Your policy would be issued in no time. Moreover, most of these websites have an easy-to-use term plan calculator through which you can calculate a feasible premium amount for your policy all by yourself.
Term life insurance cover is easy to calculate and invest in. Do not let the misconceptions around it dissuade you from ensuring your family’s financial security.