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5 myths on buying term insurance busted

If you have an existing condition, it might increase your term insurance premium amounts. But go ahead and pay the price

January 07, 2021 / 09:28 AM IST

If you have people who depend on your earnings for their expenses, it is time for you to take a term insurance policy. A term insurance policy will provide a large amount of money to your family, in case of your untimely death. This money can be used to help your family retain its lifestyle, pay rents, fund children’s education, foot grocery bills etc. as well as help realise long-term dreams such as higher education and weddings.

Term insurance is easily the most cost-effective, long-term solution to cover your family for the financial risk that can burden them, should you die early. Having said that, there are several misconceptions and myths about this product and it is easy to fall for them, and make bad decisions if you’re not well-informed.

So, here’s a list of 5 common term insurance myths, and the truths you should be aware of.

Myth 1: I must buy term insurance as early in life as possible.

This is a very common myth saying that if you buy your policy early in life, you will save a lot of money. This ‘saving’ is attributed to the low premiums you’ll get when you’re young and healthy, which will remain fixed for the rest of the term. As a result, several young individuals feel compelled to buy policies even before they have any financial dependents. You only need term insurance to support a family you might leave behind. So, if you do not yet have financial dependents (or plan to have sometime soon), there’s no reason to hurry and buy a policy (even if it means it will save you money).

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Myth 2: I can simply buy a cover that is 20X my annual salary.

Twenty times your annual salary is often suggested as a thumb-rule to fix your perfect term insurance cover. But, this is a myth.

The truth is term insurance cover varies based on the needs of a person’s family, expenses, future plans, loans and liabilities. So, it is important to ignore any such thumb-rules – and do a detailed calculation to find out the exact amount your family will need. You can use the term insurance calculator described here to find out the perfect cover amount for you.

Myth 3: Riders are awesome; they save time and money

Riders are easy add-ons that provide extra cover for special circumstances such as accidental death or disability, or the occurrence of a critical illness sometime during the term, etc. On face-value, it’s easy to assume that riders give you a good bang for your buck, while also saving you so much time and trouble. But, this couldn’t be farther from the truth.

Riders are often much less comprehensive compared to detailed covers and leave out several much-needed factors. On the other hand, they aren’t always ‘way cheaper’ either. For example, riders for critical illnesses are actually very close to comprehensive covers in terms of cost, but come with several limitations. So, it is always important to read the fine-print to know exactly what you’re signing up for.

Myth 4: The cover will reach my family before anyone else.

This is an easy mistake to make. The truth is if you have loans to be paid off when you pass away, your term insurance claim money will first be used to pay those off. Yes - even before your own wife and kids get to see it. But, worry not. There is a way around this. If you’re married and male, at the time of buying your term insurance, you can sign an addendum called the MWP – Married Women’s Property Act. This document will ensure that your cover money is insulated from your loans and liabilities and is paid directly to your wife. Remember, you can only do this at the time of taking the policy, and never later.

Myth 5: I should hide my medical conditions, so I can get a lower premium

I’ve heard on the Beshak forum, of some agents recommending that people hide their pre-existing conditions and medical history on the proposal form, as that they can reduce their premium amount. This is not just bad advice, it is dangerous! Should the insurer know of your disease/ medical history sometime later, it will be considered a case of fraudulent misrepresentation and your policy could even be cancelled (even after you’ve paid several premiums). Even worse, after your death, your family could be denied the claim amount, and you won’t even be around to do anything about it.

You should always provide honest and accurate details on the proposal form (to the best of your knowledge). If you have an existing condition, this might increase your premium amounts, but go ahead and pay the price. Doing this is the only way you can be sure that your family will receive the claim amount, and have a financially secure life in the long-term.
Mahavir Chopra is the founder, Beshak.org, a consumer awareness platform for insurance
first published: Jan 7, 2021 09:28 am

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