A term insurance policy forms an integral part of astute financial planning. In term insurance, in exchange for an annual premium, the insurance company pays a lump sum amount to the family in case of an untimely demise of the insured. The lump-sum amount or sum insured helps the family in meeting their expenses and achieving future goals.
Here we take a look at some of the myths surrounding term insurance:
MYTH 1: Term insurance policies don’t return anything on maturity. It is a bad investment.
REALITY: The purpose of term insurance is to protect your family. It is not an investment plan. There are term insurance plans which pay you back the total premium amount on maturity but they work out to be very expensive. It is good to keep your protection and investment needs separate. Moreover, being a pure protection plan it is the lowest cost protection plan as only mortality charges are deducted from the policy.
MYTH 2: Invest in insurance for tax saving purposes
REALITY: One should consider buying term insurance for protection and not for tax saving purposes alone. Tax deduction should be treated as an add-on benefit on your term insurance cover.
MYTH 3: Rs 1 crore premium should be sufficient for my family
REALITY: We often get swayed by popular numbers such as Rs 50 lakh and 1 crore. Instead, one should buy cover based on the income and future expenses of the family. One of the popular methods is Income Replacement Methods, where one should buy cover at least 10-15 times of their annual salary.
MYTH 4: Calamity befalls others, not our family. No urgency to buy it.
REALITY 4: Life is unpredictable. Buy a policy at the earliest with a sum insured of at least 10-15 times of your annual salary. The idea is to support your family financially so that all financial goals are met even when you are not around.
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