Proper and critical financial planning is crucial to ensuring a secure financial future, especially in the long run. During the beginning of a career, post-retirement planning seems to be too far-fetched. However, you will enjoy a smooth ride if you start early with proper planning.
In this article, we will delve deep to get a clear insight into the importance of life insurance and some related myths busted.
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What is life insurance?
Life insurance is a significant financial tool, an agreement between the insurer and the insured that protects you and your family despite your absence in future as per the terms of the chosen plan. It acts as a contingency support plan during rainy days.
Here, the insurer agrees to pay a certain sum at specific intervals or in a lump sum after a predefined period under specific circumstances, in exchange for a pre-defined premium, either to you or your designated nominee or beneficiary.
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To ensure a full proof financial plan, you need to understand the myths and realities related to life insurance.
Life insurance myths busted
- Myth 1: Life insurance is solely a tax-saving tool
Yes, any life insurance offers tax benefit u/s 80C of the IT Act. However, it is not its only benefit. The life insurance payouts even cater for the financial requirements of your dependents. Moreover, this benefit can act as a reliable corpus to fulfil several future financial targets.
- Myth 2: Life insurance is only useful after the policyholder’s death
The terms of the life insurance policy chosen decide this, and it is never limited only to the death of the policyholder concerned. Retirement plans are designed to fulfil your desires in your second innings of life.
However, the term insurance plans only offer a death benefit to the designated nominee or beneficiary once the policyholder-cum-insured passes away.
Endowment plans are ideal asset-building instruments.
The right investment at the right time will help you go a long way.
- Myth 3: Life insurance is only meant for the young and healthy
Uncertainty is the basic essence of life. Any accident or mishap can affect you like a bolt from the blue and jeopardise your financial planning and situation. So, it is best to stay prepared by starting from an early age.
The power of compounding plays a crucial role in investments, and you can reap much better benefits if you begin early. The probabilities of accumulating a huge corpus in the long run increase manifold.
- Myth 4: Life insurance is a costly affair
The recent insurance policies have been carefully designed to offer extensive coverage at affordable costs. Undergo in-depth research online before finalising, to know the premium amount, the coverage extent, CSR, etc., to avoid any ambiguities and misunderstandings.
- Myth 5: Employer insurance coverage is enough
Most employers and organisations offer insurance coverage benefits as part of employee perks. However, this should never be your sole insurance go-to. Once you stop working for that employer or organisation, your insurance benefits will automatically cease to exist. The same happens after your retirement.
Moreover, these policies are usually very basic plans with limited or zero customisation opportunities, which may prove to be insufficient to fulfil the varied requirements of your family.
So, it is always advised to maintain a separate life cover other than the one your employer provides you with to enjoy sufficient protection.
- Myth 6: Payout is either denied or taxed
Always consider the CSR or Claim Settlement Ratio of your chosen insurer before purchasing any policy. The higher the ratio, the better the chances are of claim settlement.
It is advised that your chosen insurer maintains a long-standing CSR of above 95%. This implies that the concerned company settles 95% or more claims out of 100%, assuring you about its reliability.
You can always check out the CSR on the verified IRDAI website.
To avoid any difficulties during claim settlements, you must also state all the details correctly.
As per the terms of the IT Act of 1961, all the death benefits from life insurance proceeds are devoid of taxation, provided the concerned beneficiary receives no additional interest on the related payout.
- Myth 7: Life insurance can’t be purchased at an advanced age
Although any life insurance product is advised to be purchased early in life to enjoy its benefits. However, these days, several companies are offering various policies for older individuals. They can easily deposit a lump sum into an Immediate Annuity Plan and receive pension facilities instantly, as per the plan terms. The spouse will continue receiving this payout even after the policyholder-cum-insured’s demise.
A whole life insurance plan is also a viable option for older individuals. It offers death benefits to the beneficiaries, ensuring financial security in both your presence and absence.
- Myth 8: Buying life insurance is difficult
These days, buying an insurance policy is simply a matter of a few clicks and taps. There is no need for any agent or third-party involvement. Once you have decided on your insurance product, simply visit the official website of your preferred insurer and click “buy insurance”. Enter all the relevant details, add the necessary rider/add-ons, pay the premium, and it’s done.
Conclusion
Life insurance is a protective financial shield that ensures financial security for yourself and your family, especially during tough times. This is a necessity for every individual. The payouts can be used to repay outstanding loans, fund your children’s higher education or marriage, renovate your existing property or buy a new one, etc.
The fast-paced, sedentary lifestyle of millennials risks their lives significantly. With the increase in the standard of living, there has been a steep rise in various lifestyle diseases.
To ensure a secure financial future, life insurance investment is unparalleled.