We are not sure about what’s going to happen next and that’s why every one of us has to plan for the contingencies. Tackling issues related to Death and Hospitalization are the two most important aspects of our future planning. Taking a life insurance cover offers financial support to the bread earner’s dependents after his or her death. Life Insurance is a very complicated product, if not understood properly. There are many elements of thorough consideration in a mere Term life policy in order to decide the amount of coverage as well as suitability of proper products. However, there are many misconceptions linked with life insurance which should be demystified before one can decide on the life cover needed to protect his/her dependents. Some of them are as under:
· I don’t need life insurance as I am single & don’t have dependents: Every single person thinks in the same way regarding life cover but even a single person requires sufficient life insurance to cover the expenses of personal debts, medical as well as funeral bills. In case you are uncovered, you may pass on the legacy of unpaid expenses to family or relatives.
· Term insurance coverage at workplace is adequate: If you are single, then term insurance provided by your employer may or may not be sufficient. However, in case you have dependents, additional life coverage is advisable to pay off all your debts after your demise if your term policy doesn’t meet all your requirements.
· Life insurance cover needed is only twice my annual salary: Insurance coverage varies from person to person depending on their financial conditions. One should repay his loans or debts apart from medical & funeral expenses. So, if you have to repay loans, you should execute a cash flow analysis to get the actual amount of insurance required to buy.
· Must have life insurance at any cost: This concept is true up to some extent. However, if you are single with good assets and don’t have any dependent or debts then you can choose to be un – insured. Your coverage will become optional if you have medical expenses covered.
· Only working people need a life cover: It is a big misunderstanding that only working people need a life cover. Even a homemaker needs a life cover because the cost of replacing the services of the deceased person with a professional is much higher than your imagination. Today, the cost of cleaning and children’s tuition & day care are very high. So, insuring against the loss of home maker will provide the cover for these expenses.
· Buy a term and invest the difference: It is not right to buy a term policy in place of full insurance policy as there are very many differences in term policy and permanent insurance policy. A permanent life insurance policy provides cover until your death on the other hand term policy provides cover for certain number of years i.e.1 to 30 years. Under the term insurance, premiums are low, but there is always a threat of price hike linked with a term policy after a certain time to an unreasonable rate. So, it is advisable to buy a costly permanent insurance policy with fixed premiums rather than a term policy whose premiums could sky rocket at the time of renewals.
· The Variable Universal Life Policy is more advanced than Straight Universal Life Policy for a long run: A Variable Universal Life Policy (VUL) provides a life cover along with the investment opportunity. In such a policy, in addition to the death benefit, here one should get the cash value account. Anything paid more than the premium above the current cost of insurance is deposited in that particular cash value account. This account is credited every month with interest. It should be kept in mind that a certain amount of fees is charged for both the insurance as well as cash account of the policy holder.
· It’s better to invest money than buying a life insurance: It is a risky process as returns on investment are very much volatile while in insurance you will get near guaranteed returns. This strategy is not advisable especially while in the early years of your life, if you have dependents. This is because after your death, they can’t survive without a life cover because assets cannot make up for the millions of expenses to be incurred.
These are general myths related with life insurance which people face nowadays. There are many more questions you should ask yourself. Hence, it is recommended not to leave life insurance out of your pocket even if you have ample of assets for the family to cope up with all expenses after you are not there!