7 Term Insurance Myths Debunked

What is a term insurance plan?

A term insurance plan is the simplest and most popular form of life insurance. It pays a predetermined sum assured to the nominee if the life assured passes away during the policy term. The payout can be received as a lump sum, a monthly income, or a combination of both, depending on the selected option.

However, term insurance does not offer maturity benefits. If the life assured survives the term, the coverage and premium benefits end. To remain insured, the policyholder must either renew the current plan or buy a new one after it expires.

This plan is suitable for individuals who require higher coverage at a low cost to support income replacement, debt protection, and other financial needs. Understanding this can help policyholders bust any myths about term insurance and make informed financial decisions.

 

7 Myths Debunked of Term Insurance

 

Myth 1: Term insurance plans can only be purchased offline

Due to the rise of E-commerce, insurance companies have made term insurance plans available online. All you have to do is log in to the insurance Company’s website, pay the premium amount online, and submit the documents on the website. Check with your insurer to determine if they require any medical tests.

 

Myth 2: An investor cannot extend the coverage of term insurance plans

A common myth around term insurance is that coverage cannot be increased. In fact, policyholders can increase the coverage amount as their responsibilities grow, such as with marriage or the birth of children. If your policy doesn’t have this feature, you can top up the existing policy or purchase an additional one, with premiums adjusted from the next renewal date.

 

Myth 3: The term insurance plans are similar to one another

Life insurance policies are never identical to one another. They are entirely different in their approach. Whether it’s the features, benefits, and premiums, a life insurance policy like a term plan cannot be similar to any other policy. The types of term policies depend on the insurer, hence, there’s no chance of familiarity with one another.

 

Myth 4: Term insurance plans are the most expensive.

Term insurance plans are affordable. Additionally, the premiums for online term insurance policies are generally lower than those for offline term insurance, due to the reduced involvement of agents.

 

Myth 5: The claims under term insurance plans are always rejected

The policyholder must thoroughly read the terms and conditions of the term policies. Reading the terms and conditions will help to understand the inclusions and exclusions, if any. If you claim within the boundaries of the exclusions, it will never be rejected. Other ways to avoid rejection of claims include paying premiums regularly, filling out the claim form accurately, and submitting all correct details, as well as making proper disclosures regarding health and related aspects.

 

Myth 6: Life insurance benefits are realized only after the death of the life assured

A commonly held term insurance myth is that it only provides benefits after the death of the life assured. However, it is a fact that the sum assured can indeed be availed by the nominee(s) only if the life assured has passed away during the policy tenure, there is no maturity benefit unless you opt for a Return of Premium (ROP) feature.

However, term plans can also provide benefits during the policyholder’s lifetime through optional riders. Plans with critical illness riders or accidental death benefits offer support during the lifetime. The beneficiary can access these funds for major medical treatments, income replacement, or debt coverage.

 

Myth 7: Young and healthy individuals often think they don’t need life insurance

Many young adults assume term insurance is unnecessary due to their age and health. However, life is unpredictable, and in case of untimely demise, it may assist their dependents in covering expenses such as loans, living costs, and education. Buying early also locks in lower premiums and allows comprehensive coverage at a lower price.

 

Key Takeaways

1. Term insurance provides a death benefit to nominees, either as a lump sum, monthly payouts, or a combination of the two.
2. There are some term insurance myths, such as the idea that it's offline-only, expensive, or identical across providers, which can delay coverage. But understanding policy features, exclusions, and riders can eliminate these misconceptions.
3. Apart from death benefits, term insurance can also include critical illness, accidental death, or disability riders, which can provide additional support for medical costs, income replacement, and debt coverage.

 

Conclusion

Debunking the myths of term insurance is essential for making informed decisions. These misconceptions often delay or prevent coverage from being obtained. A term insurance plan guarantees your family receives the full death benefit, either as a lump sum or monthly payments, to cover living expenses, outstanding loans, and future financial goals. Understanding the plan’s features, exclusions, and claim process allows policyholders to select the right coverage for their dependents.

 

Frequently Asked Questions

 

1. Is term insurance only for older people?

Term insurance is suitable for all ages. It depends on your financial planning. For example, younger individuals can benefit from lower premiums (potentially). It provides financial protection for their dependents and helps them meet future obligations.

 

2. Do young and healthy people really not need term insurance?

Early coverage locks in lower premiums and protection before health issues emerge. Waiting increases costs and the risk of policy ineligibility.

 

3. Can term insurance cover all types of risks?

Term insurance is a pure protection-oriented plan. It only covers the death of the life assured during the policy term. It does not cover illness, disability, or income loss. However, you can cover these risks with suitable riders subject to their availability with the base plan and at nominal additional premium.

 

4. Is term insurance too expensive for middle-income earners?

Term insurance is generally the most affordable life insurance available for middle-income earners. For instance, a 30-year-old non-smoker can opt for a term plan with a sum assured of ₹10 lakh for as little as ₹500 a month.

 

5. Does term insurance payout only after the death of the life assured?

A standard term insurance pays the death benefit to the nominee upon the life assured’s death. However, features like return-of-premium (ROP) offer a refund of premiums at maturity if the insured survives, and riders such as Critical Illness or Accidental Disability can provide lump-sum payouts during the policy term upon specific events.

 

6. Can people with minor health issues buy term insurance?

It is beneficial to provide a medical history to avoid any complications at the time of claim. Though people with minor health issues can buy term insurance, a proactive approach is always better. However, they may have fewer options, have more extended waiting periods, undergo medical checkups, and pay higher premiums.

 

7. Are riders unnecessary in term insurance policies?

Riders add specific coverage, like critical illness, accidental death, disability benefit, or premium waiver, protecting against death, disease, and disability.

 

8. Does term insurance lose value if I outlive the policy term?

Usually, term insurance expires without payout if the life assured survives the term. You can choose return of premium (ROP) option. It refunds the premiums paid.