When it comes to making financial investments for the betterment of your family’s future, there are several different investment instruments available in India. Out of the slew of variants available, term plans are considered to be one of the most reliable options out there.
Being an extremely popular insurance plan in India, it allows you to accumulate monetary cover for your family to help them sustain a better lifestyle in the event of your unfortunate demise. They’re ideal to safeguard a financially secure future, especially if you have the responsibility of several dependents.
However, as not many people have adequate knowledge about these plans, certain misconceptions revolve around this financial product in the market, which not only affects its reputation but also manipulates the financial decisions to be made by you.
This article aims to debunk all the misconceptions associated with term plans, and helps you get your facts verified before you proceed to invest in them. By the end of this article, you’ll be aware of the various false beliefs tied up with term plans.
1. Term Plan is Only beneficial At a Young Age
It is often believed that a term plan only proves to be profitable when you start investing at an early age, as this allows you to keep your premium amount low. However, it is completely false as the main goal of gaining term insurance is to protect the future finances of your family.
With that said, the purpose of term insurance is to ensure that your family or dependents don’t feel any liabilities or financial burden in the event of your unfortunate death. If you’re still unmarried and live a financially stable lifestyle, you don’t need a term plan as of now.
You should not be provoked by the cheap price available, especially when it’s something that holds no importance until a specific stage of your life. Instead, you should consider investing in a term plan as soon as you have dependents to take care of.
2. Not Every Type of Death is Covered Under Term Insurance
Various people think that term insurance doesn’t provide coverage for certain types of deaths. However, with only a single exception of suicide, a term insurance policy covers all types of deaths and proves the above statement false.
Moreover, even if your preferred insurance company excludes any kind of death, they’ll have to mention it in the proposal document as a part of their responsibility. Unless any type of death is mentioned explicitly, you don’t have to worry about any exclusions.
Additionally, you should also know that there might be some additional exclusions in the riders that you’ve opted in your policy. Therefore, make sure that you enquire about such exclusions to prevent getting surprises with your policy.
3. Riders are Crucial for Term Plans
As they cost way less than individual covers, many policyholders consider riders essential for their term plan. However, these are shortcuts made for people who don’t want to gain the most out of their policy by spending time and effort to find a comprehensive cover.
Moreover, they don’t have a significant price difference and are just relatively little cheaper than individual plans. There are also several limitations associated with them, which make them a lazy form of investment as compared to specialized covers for individual purposes.
With that being said, not all riders are a waste of money, such as critical illness and waiver of premium riders that prove to be extremely beneficial for your coverage. These are exceptional cases because an individual cover for critical illness may get very expensive.
4. Only the Insurers with Best Claim-Settlement Ratio Should Be Preferred
While the claim settlement ratio is a noticeable figure for an insurance company, your investment decisions should not be entirely dependent on it. It only gives insight into the percentage of claims settled among the total claims received by the company in a financial year.
There’s nothing particular about the experience of the policyholder or the quality of the company that highlights through the claim settlement ratio. Oftentimes, it is calculated for multiple products and does not necessarily indicate the number of successful terms plans claims as well.
Therefore, you should never be dependent on this ratio to make investment decisions, and research through the various declarations and disclosures given by your preferred term plan provider to increase your family’s chances of winning the claim.
5. Term Plans Cover Amount Should be 20x Your Current Annual Salary
The practice of choosing a cover amount that equates to 20x of your annual salary is just a generalized rule of thumb that doesn’t apply to everyone, as we all have different financial backgrounds and circumstances in life.
An adequate cover amount depends on the current lifestyle of your family and their plans. It is suggested to make a list of both short- and long-term goals you’ve determined, along with the currently existing savings and investments you own.
Based on these factors, you’ll be able to come up with a much more reasonable cover amount that’ll allow you to accumulate a specific amount of money to help your family live a liability-free lifestyle in your absence.
6. Your Spouse Receives the Claim Amount Without Paying to The Creditor
As per the general laws of life insurances, creditors are the ones to have the first access to your term insurance claim amount, even before your children. However, if you’ve purchased the term insurance under the Married Women’s Property Act, your spouse can gain the amount directly.
Now when you know about all the misconceptions revolving around term insurance, you can easily determine whether you require it or not. While these misconceptions are still popular in India, a wise person never falls for anything heard without verifying the source of information.
Therefore, make sure you keep all the above-mentioned beliefs in mind before purchasing a term insurance policy. There are various types of term plans available in the market as per your ranging requirements. Choose wisely and secure your financial future.