8 Life Insurance Myths You Need to Know

In the internet age, everything is just a click away, including life insurance policies. Despite the availability of a great deal of information, some myths and misconceptions about life insurance policies continue to circulate online and on social media. Sadly, this can lead to someone missing out on a beneficial opportunity or making the wrong decision based on inaccurate information. Life insurance is a long-term commitment and making the wrong call can have serious financial implications for your family.

So let's debunk and otherwise correct 8 life insurance myths revolving around life insurance. Keep reading!

Here are 8 life insurance myths that can keep you from buying it -

Fact: There is no denying that you purchase life insurance to protect your dependents' financial futures. However, life insurance does much more than that.

There are various options that can help you build a corpus to make you financially independent during retirement, cover exorbitant medical expenses, or build your wealth.

For instance, retirement plans help you achieve financial independence in your later years. ULIPs help you build a nice savings fund. Investing in endowment plans can help you achieve your short-term and long-term goals.

By investing in the right insurance product based on your needs, you are ensuring your family’s financial security.

Fact: As you age, you are more likely to need specific medical care. You may also become susceptible to serious illnesses or ailments, which could cost you a fortune. Eventually, it can deplete your retirement savings. In spite of your interest in life insurance policies, you may hesitate to apply thinking you might be denied coverage because of your age and preexisting conditions. This is not true, though.

To ensure your financial security even after retirement, there are different types of life insurance products available on the market.

• Single premium retirement plans are specifically designed to take care of all of your retirement needs. You can deposit a lump sum amount into this plan and start receiving your regular payouts immediately, which serve as retirement income. And, should you pass away unexpectedly, your spouse will continue to receive payouts, if you choose this feature.

• Alternatively, you can purchase whole life insurance and ensure coverage for the rest of your life. In the event of your death, your loved ones will receive the sum assured in the form of a death benefit - which can help them with their expenses and maintain their standard of living.

Fact: Life insurance is commonly thought to be expensive. As a matter of fact, life insurance plans provide multiple affordable options to choose from, depending on your unique needs. For a 30-year-old, non-smoker male, the premium for a 1 Crore term plan with a coverage of up to 60 years is approximately Rs 900 with taxes. Isn't this cheaper than dining out?

Remember, the sooner you invest in a plan, the lower the premiums because the insurer finds a young and healthy individual less risky to cover.

Fact:The main purpose behind buying a policy is to secure your family's financial future. However, many people are deterred from buying such policies due to the fear of claim rejection and denied payouts. In any case, you should note that your claim won't be rejected unless and until there is a genuine reason.

What can you do from your side to ensure your claim won’t be rejected in future?

1. Check Your Insurance Provider's Claim Settlement Ratio (CSR) And Solvency Ratio

You can use Claim Settlement Ratio (CSR) to gauge your insurer’s worth. A claim settlement ratio is calculated as the number of claims settled by the insurer divided by the number of claims received in a particular financial year.

Claim Settlement Ratio = Number of claims settled/Number of claims received X 100

Say an insurance company has a CSR of 95%. This value indicates that the company settles 95 out of 100 claims and 5 claims are rejected or pending. The higher the ratio, the more likely the company is to meet customer claims.

The Insurance Regulatory and Development Authority of India (IRDAI) website provides information about all insurers' claim settlement ratios. Examine the list, compare the CSRs of various insurers, and choose the one that best suits your needs.

2. Disclosure of personal information and medical history

Additionally, when filling out your proposal form you should disclose all your personal information and medical conditions truthfully. By doing so, you will prevent the claims from being refuted in the future.

Fact: Generally, employer insurance policies provide minimal coverage with basic features that can't be customised. Thus, it won't be enough to cover your and your family's needs - such as children's education, marriage, medical emergencies, retirement expenses etc. Additionally, your employer insurance coverage will only last as long as you stay with your company. Once you quit, the insurance will no longer cover you.

Therefore, it is better to have a personal life insurance plan irrespective of whether or not you get one through your workspace - that can support you financially all through your living years as well as keep your loved ones financially secure, should something unfortunate happen to you.

Fact: It is true that a life insurance plan is an excellent way to save taxes. It offers the following tax benefits³:

• Under section 80C, you get a tax deduction on the insurance premiums you pay.
• Under section 10(10D) of the Income Tax Act, the life insurance claim amount and bonus (if any) received will be completely exempted from tax.

Although life insurance offers tax advantages³, this should not be the only reason to purchase it. A life insurance plan's primary purpose is to provide life protection as well as financial stability. Tax benefits³ are only an added bonus. Make sure you check out the features and offerings of a plan before purchasing it.

Fact: Purchasing insurance has become easier than ever, thanks to the internet. Today, there is no need to rely on agents or wait for appointments with your insurer. You can purchase life insurance policies from the comfort of your own home without any hassle.

Here are the steps you need to follow to ensure a smooth policy purchase process:

• As a first step, compare the various top-rated products online and weigh their pros and cons.
• Once you have zeroed in on the product, you simply need to visit the insurer's website.
• With the help of online calculators, you can find out how much premium you have to pay.
• As a next step, you will be asked some simple and straightforward questions about your health conditions, your preferences, and your occupation.
• Your KYC documents can then be uploaded and payments can be made securely online.

When it comes to buying your first life insurance policy, it can be a bit overwhelming. Knowing the ins and outs of life insurance, however, makes things much simpler. Now that we've dispelled most of the myths surrounding life insurance, we are sure that you will find your ideal policy that suits your needs.