When it comes to financial planning and securing your financial future, term insurance is often a topic of discussion. However, there are several misconceptions surrounding term insurance in India that can lead people to make ill-informed decisions.
In this blog, we will address some of the top misconceptions about term insurance and provide more insights on the significant term insurance tax benefits.
Common Misconceptions About Term Insurance
1. Term Insurance Is a Waste of Money
One of the most common misconceptions about term insurance in India is that it’s a waste of money because it doesn’t offer any returns if the policyholder survives the term.
While it’s true that term insurance doesn’t provide a maturity benefit, its primary purpose is to provide financial protection to your loved ones in case of your untimely demise. This means that if you pass away during the policy term, your beneficiaries will receive a substantial sum assured, helping them maintain their financial stability.
2. Term Insurance Is Expensive
Another misconception is that term insurance is expensive and not affordable for a middle-class average Indian. In reality, term insurance is one of the most cost-effective ways to secure your family’s financial future.
The premium for term insurance policies is significantly lower compared to other types of life insurance, such as endowment or whole life plans. With the wide range of term insurance options available in the market, you can choose a plan that fits your budget while ensuring your family’s financial well-being.
3. You Don’t Need Term Insurance If You Are Young & Healthy
Many young and healthy people believe that they don’t need term insurance as they are less likely to face health issues or untimely death. However, no one can predict what the future holds.
Term insurance is essential for providing financial security to your family, especially if you have dependents. Starting early can also lock in lower premiums, making it a financially prudent decision in the long run.
4. Term Insurance Only Offers Death Benefit
While it’s true that the primary purpose of term insurance is to provide a death benefit, some term insurance plans come with additional riders and benefits. For instance, you can improve your term insurance coverage with riders like critical illness cover, accidental death benefit, and disability cover.
These riders can provide additional financial protection in case you are diagnosed with a critical illness or become disabled due to an accident.
5. Term Insurance Does Not Have Many Tax Benefits
Term insurance tax benefits are often underestimated. Under Section 80C of the Income Tax Act, the premiums paid for term insurance are eligible for a deduction of up to Rs. 1.5 lakh from your taxable income.
Additionally, the death benefit received by your nominees is tax-free under Section 10(10D). These tax benefits not only reduce your tax liability but also make term insurance a more attractive financial instrument.
6. Term Insurance Is Only for Breadwinners
Some people believe that term insurance is only necessary for the primary breadwinner of the family. However, anyone with financial dependents should consider term insurance, including homemakers.
While they may not have an income, their contributions to the household in terms of caregiving and managing the household are invaluable. In their absence, the family may need financial support to cover expenses such as childcare and housekeeping.
7. I Can Rely on My Employer’s Group Insurance
Many individuals rely solely on their employer’s group insurance policy for financial security. While group insurance is a valuable benefit, it often offers limited coverage, and the coverage ceases when you leave the company.
To ensure continuous protection for your family, it’s advisable to have a separate term insurance policy that is present always regardless of your employment status.
8. I Can Buy Term Insurance at Any Age
While it’s true that term insurance is available at various ages, purchasing it at a younger age is more advantageous. Premiums tend to increase with age, and any health issues that arise later may result in higher premium rates or even denial of coverage.
Therefore, it’s prudent to buy term insurance when you are young and healthy to secure lower premiums and guaranteed coverage.
9. The Claim Process Is Complex and Lengthy
Some individuals are apprehensive about the claim process for term insurance, assuming it to be complicated and time-consuming. In reality, most insurers have streamlined and simplified the claim settlement process. If you provide accurate and complete documentation, the claim can be settled swiftly, providing much-needed financial support to your family during a difficult time.
Term insurance is a crucial financial tool that provides security and peace of mind to your loved ones. By debunking these misconceptions, you can make an informed decision about term insurance in India.
Remember that term insurance offers valuable tax benefits, is cost-effective, and can be tailored to suit your specific needs. So, don’t let these myths deter you from securing your family’s financial future with term insurance.