Misconceptions About Life Insurance Policies

Life Insurance or pure term insurance is an extremely important necessity for everyone. However, it is seen that many people do not realize its importance and ignore taking a life cover till very late in life. This delay in purchasing a life insurance cover can also be attributed to certain misconceptions. Here are some popular misconceptions about life insurance policies:

Life insurance is only for saving tax:

Life insurance premium paid is one of the most popular deductions used under Sec 80C of the Income Tax Act by tax assesses. As a result, people think that the main purpose of purchasing a life insurance policy is to get a tax benefit. However, tax savings is only incidental and the main aim of purchasing a life insurance cover is to protect the family in the policy holder’s absence.

A healthy person does not need life insurance:

Life insurance is usually associated with death. While the purpose is to protect dependents in case of death, there is a popular misconception that if one is healthy, he will not die soon and therefore there is no need for life cover. This thought makes people put off purchasing an insurance cover. However, death can occur due to any reason and not only because of poor health.

An unhealthy person will not be able to get life insurance:

Again, people think that if they have health issues, then they will not be able to purchase a life insurance cover, although they need one. This is because they think the medical tests will throw up the health issues and hence they will be rejected. Life insurance companies have various ways of calculating premiums. The premium for a person with poor health or certain lifestyle will automatically reflect this factor.

Life insurance is a waste of money:

With the advent of new insurance products which combine an investment component, many people have come to believe that buying a pure life insurance is a waste of money. They think that the amount paid as premium for so many years is not going to come back, unless the policyholder dies, and death is not something which people wish for. As a result, the decision to purchase a pure term cover is put off. However, it must be understood that life insurance is a risk cover, and not buying one can put a severe financial pressure on your dependents.

Only people with a family need life insurance:

Life insurance is primarily purchased to compensate your family in your absence. The loss of your income is compensated by means of the sum assured amount, which will be paid to them in case of your death. However, you may need a life cover even if you are unmarried or if you don’t have children. This is because there may be other dependents that live on your income. For example, your parents may be retired and may depend on your income. Or you may have an uncle or aunt whom you are looking after.

It is ok to forget about life insurance once it is purchased:

This is another misconception which people have. It is considered that on a purchase of a life cover, the risk is taken care of and there is nothing to worry about. But people should remember that times change and the needs of the family also change. You may have an extra member in your family or there may be a new liability, like a home loan which needs to be taken care of, in your absence. Hence, the extent of life cover should be regularly reviewed and changes should be incorporated.

Related Post: Impact of Life Insurance Without Medical Exam