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Financial concepts pertaining investments can be quite confusing to the lay person, and as is the case with any complicated subject, a lot of misinformation and myths begin to take shape. This is true for term plans, as well, and it can be problematic, as many people simply avoid buying these types of policies.
The difference between what term plans are perceived to be and what they actually are is huge. Even though such policies are the purest kind of insurance, term plans are not popular due to a lack of understanding among potential buyers.
Here are 5 common myths about term life insurance plans. Hopefully, access to such information will help dispel any rumors and myths, allowing you to make better-informed decisions about your investments.
1. Single individuals do not need term plans
This is completely inaccurate and single individuals are also advised to avail term plans. These kinds of insurance policies offer protection against debt obligations like home, personal, or auto loans. You would not want your family members to be burdened by such outstanding debts in case of your sudden demise. Moreover, in single-income homes (with dependent parents); you must ensure financial security, in case of your death.
2. Coverage only for current income
In reality, you must acquire coverage for future income too, because coverage for present income will be inadequate to provide financial security to your family in the long term. The amount of coverage depends on your income and liabilities. Term insurance plans in India are based on human life value (HLV), which tries to financially estimate the value of your life. You must acquire coverage equivalent to your present income (inflation-adjusted) to ensure continued lifestyle for your survivors after meeting outstanding debt obligations.
3. Not available beyond age 50
One of the most common term insurance myths is that these policies cannot be purchased if you are over 50 years of age. In reality, these policies are available up to 65 years and some insurers offer term plans providing coverage until the age of 85 years. However, availing these insurance plans for more than 50 years is not recommended, as the premiums are steep.
4. Expensive insurance plans
Contrary to belief, term insurance is the most affordable way to acquire life cover. Term policies are pooled risks where the premiums are paid by pooling the perceived risks for several buyers of the insurance company.
5. Limited to death benefits
This will actually depend on the insurance plan and the add-on features you include within the plan. Certain riders can be included with the term plan for more benefits. Some of the possible riders could include accident cover for permanent or temporary disability, critical illness cover, and others.
When considering term plans, you need to remember that these are meant to provide financial security to your loved ones in case of your untimely demise. With an accurate investment objective, you will be able to make the right choice of availing a term policy that suits your needs.
About HDFC Life
HDFC Life, one of India’s leading private life insurance companies promoted by HDFC Ltd. & Standard Life Ltd., offers a range of individual and group insurance solutions. HDFC Life’s product portfolio comprises solutions, which meet various customer needs such as Protection, Pension, Savings, Investment and Health.
Thanks for reading this article. I'd love to hear your opinion. Please use the comments section below to share your thoughts. I frequently write new articles that also cover several other aspects of personal finance including credit cards, financial goals, health insurance, income tax, life insurance, mutual funds, retirement planning, and much more. You can Subscribe through Email and receive new articles directly in your Inbox or you can Subscribe through the RSS Feed and receive new articles in your feed reader.