Life insurance holds an essential position in our financial planning. We don’t need to stress much on the importance of having life insurance, but as the internet can be a funny place, it often manipulates people into untrue facts leading them to make the wrong decisions. Therefore, it is essential to analyze and carefully compare all the policies and choose the best term plan suitable for you and our family.
Here are five worse advice about Term insurance that most individuals come across while researching for an appropriate life insurance policy on the Internet:
1. You don’t need term insurance
Life is unpredictable. You never know what the next moment holds for you. You can ensure your family’s financial security in times of crisis with a term plan. It is the most cost-effective method to protect your family against unfortunate events. If you survive the term period, the insurer will pay you back a certain amount of the total premium. Ideally, your term plan covers at least 65 years as in the case of the death of the policyholder; the term insurance will also take care of any remaining financial liabilities. It would help if you chose the best term plan for your family considering all their needs so that your family will never have to compromise on the necessities such as quality education even when you are not around.
2. You can delay purchasing a term plan
It is essential to buy insurance as soon as you start earning. Whether it is a severe illness or a bizarre road accident, nobody has seen the future. It is often advised to buy a term plan in your 30’s as the premium increases with age. As you get older, you are at a higher risk of lifestyle diseases. Therefore, it is not wise to delay the purchase of a term plan. Buying a term plan early also keeps you stress-free as god forbid, if anything happens to you, having a term plan will come handy to provide your dependents financial support.
3. Term insurance plans are only good for tax saving purpose
As per the prevailing tax laws, the premium paid is eligible for tax exemption under Section 80 C as per the Income Tax Act 1961. Death benefits received by the policyholder’s nominee are also tax-free.
However, tax saving should not be the primary reason for buying a term plan. A term plan is designed to cover you and your family against any misfortunes and provides for the expenses, including education and pays off any debts that the policyholder may have.
Reputable insurers such as Max Life Insurance offer comprehensive term plans at affordable premiums. It also provides short-term investment options specifically to avail tax benefits such as:
- Equity Linked Saving Scheme (ELSS) is a type of mutual fund that invests in the equity market and offers tax exemptions of up to Rs.1,50,000 under Section 80c.
- Debt-based Mutual Funds are tax-efficient funds that act as an alternative to short-term bank fixed deposits and primarily invest in money market instruments. This short-term investment is most suitable for risk-averse investors. The dividends you will earn under this scheme are also tax-free.
- Single-Premium Life Insurance offers dual benefits of an investment as well as insurance. You need to pay the premium once which is eligible for tax deduction under Section 80c to a maximum limit of Rs. 1,50,000.
While there are a lot of short-term investment options available for tax saving, you should buy a term plan to provide your family financial protection in case of your untimely demise and not for mere tax exemptions. You can select the best term plan suitable for your family by adding more benefits available such as critical illness cover.
4. It is better to buy a short-term insurance policy and renew it when the term expires
The short-term insurance policies are designed to take care of the near future expenses and in providing significant returns over a short period. The long term goals are not taken into consideration. Short term investments such as Bank fixed deposits, Recurring deposits and debt instruments may provide you high liquidity but for a limited period.
Term plans now offer coverage for up to 85 years of age and also protects against various critical illnesses. Therefore, one must invest keeping mind the long term financial goals.
5. Medical tests before purchasing a term plan are not important
Medical tests can be of great help in determining the best term plan suitable for you. Disclosing all the health conditions is mandatory before buying a term plan; if proven wrong, the claim may also get rejected.
A policy in which going through a medical test is mandatory, such as a term plan, your premium can also get lowered owing to good health. On the other hand, health complications can lead to high premiums.
So, it is crucial to make the right decision by considering all your family needs and select the best term plan for yourself.