7 Common Myths about Term Insurance You Should Know

Term insurance is one of the most vital financial planning components that aim to protect your family against the odds of the future. It acts as a safety net to fund your children’s education or marriage, or even save a corpus for your family’s future needs when you are not around anymore. However, purchasing term insurance for ensuring your family’s future financial security is less understood.

The myths revolving around the concept of term insurance can be the main cause for this. These misconceptions and false information need to be cleared out for you to make sound insurance decisions. Because ultimately, insurance is rather a risk-management financial decision than an emotional one.

This article aims to clear all such common myths of term insurance and give you better clarity. So, let’s begin!

7 common myths about Term Insurance

Term insurance provides your family financial security in case you pass away during the policy term. Here are some of the most common myths about term insurance that people have:

Term insurance is a waste of money

Term insurance is a pure risk cover wherein your family gets a death benefit, i.e., a fixed amount of money if you pass away during the policy term. This amount can be used by your family to ensure that their lives don’t get stranded without your income. However, term insurance does not provide a maturity benefit if you survive the policy term. Hence, people think it is a waste of money.

Every insurance product has its own features and benefits to offer. Term insurance cannot be compared to life insurance as both are intended for different purposes. A term insurance policy guarantees¹ financial security to your family. The sense of security offered by a term plan is no match to the meagre premiums you pay. It must be considered a safety tool, not an investment one.

Term insurance is expensive

Term insurance is, in fact, one of the most affordable types of life insurance plans available in the market. The premiums you pay in term insurance are relatively lower for their high coverage. Suppose you buy term insurance policy with a sum assured of Rs. 1 crore - the premiums you are expected to pay are as low as Rs. 900 a month. It means that almost for every rupee you invest, your family gets Rs. 1000 back if you pass away during the policy term.

I’m not married. I don’t need term insurance.

Your life can turn around the corner no matter what age you are - whether you are single or married. If you think that only your spouse or children might depend on you financially, you might be wrong. With age, your parents might retire and start relying on your earnings. Your siblings might depend on your income for their educational needs. If something unfortunate happens to you, a term insurance policy will give them the agreed sum assured to meet all their financial needs.

I’m covered under my employer-provided term insurance. It is enough.

Generally, employer-provided term insurance may not suffice your family’s specific financial needs. Also, your policy might cease if you switch or lose your job, or retire. As your employer is the negotiator of the policy, you might be left with little or no say over its terms. This means that you cannot customise your policy when needed and cannot completely be assured that your family has adequate coverage in case you pass away. It is hence recommended that you buy individual term insurance to curate and customise the policy according to your family’s needs and requirements.

If I appoint my wife as the nominee, she will get the term insurance claim amount directly

Did you know that the law states that your creditors have the first right to the term insurance claim amount, even before your family? If you are married and male, and are appointing your wife as the nominee, you can avoid this. How? You can ensure that your wife receives the claim amount first if you take your policy under the Married Women’s Property Act (MWP). All you need to do is sign an extra addendum while buying the policy MWP Act will safeguard the funds from creditors and third parties and ensures that your wife gets the claim amount directly.

The right coverage amount is 20X my annual income

You might have come across this phrase many a time, but it’s not entirely true. The right cover amount depends on not just one factor like your annual income but several other factors like your age, number of dependents, financial obligations, future goals, etc. So, it is best to calculate your family’s specific financial needs rather than aiming for a blanket figure.

While calculating term insurance, you need to consider your short and long-term expenses, loans/liabilities, and funds you own. List out your financial goals and see how much will be required to provide a financially stable life for your family.

You can also use the ABSLI HLV Calculator to calculate the right cover amount for your family - in minutes!

Many types of death are not covered under term insurance

All types of deaths are covered under a term insurance policy, except in the case of suicide (if it takes place within a year of buying the policy). If the suicide happens within the first policy year, your nominee will be returned the premiums paid until then - minus taxes. Besides this, term insurance covers all types of deaths. Any exclusions in the policy have to be explicitly mentioned by the insurer. If not mentioned, you do not have to presume any exceptions in your policy.

However, if you have riders added to your policy, there might be exclusions under them. To get a better understanding of these exclusions you can check with your financial advisor or contact your insurance agent.

For example, Say Rahul buys term insurance with a sum assured of Rs. 50 lakhs along with an accidental death benefit rider with sum assured of Rs. 20 lakhs. After a few years, he passes away in a paragliding accident. In this case, the cause of death, i.e., participation in risky activities is not covered under the accidental death benefit rider. Hence, Rahul’s family will only receive the claim amount of Rs. 50 lakhs and not rider benefit of Rs. 20 lakhs.

Let us now get an idea of ABSLI’s term insurance plans that you can purchase for yourself and your family.

Planning to buy term insurance?

Listed below are two of the best Term insurance plans offered by ABSLI you can consider buying.

ABSLI Life Shield Plan - H3 (Specify UIN)

The ABSLI Life Shield Plan is a simple yet comprehensive term insurance plan that ensures your family’s financial security if something happens to you. It is available at affordable premiums and comes with a series of benefits like the return of premium option, increasing cover, decreasing cover, joint life protection option, and many beneficial riders.

ABSLI DigiShield Plan - H3 (Specify UIN)

The ABSLI DigiShield Plan assures a financial safety cushion to your loved ones and offers coverage until 100 years of age. It provides 10 different plan options to choose from. It comes with multiple benefits like the limited pay option, increasing and decreasing cover option, return of premium option, and an extensive list of riders.

To conclude, - H3

A term insurance plan requires you to pay premiums, and in return, it promises your family financial stability and balance. This article has cleared most of the common myths you must know before you buy term insurance. Now that you know the truth, you can make an informed decision. And if you have family members who depend on you financially, you should not delay buying term insurance.