Insurance is integral to fostering financial security and ensuring protection from unforeseen circumstances and risks. Yet, people often overlook the idea of buying insurance due to a barrage of misinformation and myths that have persisted for decades.
Many individuals end up buying ULIPs or endowment plans, mistakenly believing they are purchasing insurance when, in reality, these are investment products. Additionally, people often find themselves underinsured or overinsured by opting for a ₹1-crore insurance cover amount without proper assessment of their needs.
In summary, there is a lot of misinformation and mis-selling, even among professionals within the finance industry. Individuals need to purchase insurance the right way, as insurance needs are unique to each person and there is no ‘one-size-fits-all’ solution.
Some common myths
Here are some of the common myths that must be debunked, in order to empower people with accurate information, needed to make informed decisions about their financial protection and insurance purchases.
● You need life insurance for as long as you live: We’ve noticed instances where individuals take cover till 85. which isn’t ideal, especially if their dependents have started earning by the time their parents are in their eighties, and do not need the financial support.
● Smokers must pay more premiums: While smoking does increase the premium amount, if you quit smoking for over a year, your premiums can be equal to a non-smoker’s as well.
● Hiding health issues/smoking will reduce your premium: Every insurance has a waiting period after which you become eligible to benefit from it. So, in case you hide a health issue to reduce the premiums and the problem intensifies, you won’t be able to use the benefits of your insurance.
● If you are young and healthy, insurance is not a prerequisite: This is a very dangerous ideology to have. Life as we know it is extremely unpredictable and it is always a good idea to have ample financial backing. Insurance acts as a fallback plan for youngsters too, in case of financial setbacks. The sooner you purchase insurance, the lower your insurance premium amount is, and you get truly long-term protection.
● Purchasing insurance puts a dent in your pocket: Insurance is not a choice, it is a necessity. And the sooner you buy it, the less expensive it will be. Also, do not go for complicated insurance products such as ULIPs or endowment plans that are often mis-sold as Life Insurance. If you opt for a simple Term Life Insurance Plan, you don’t really need to shell out a huge amount from your pocket.
● Your employer’s insurance coverage is sufficient: Relying solely on your employer’s insurance plan may provide standard coverage, but it is essential to recognise its limitations as well. Additional insurance, apart from employer’s insurance, ensures more comprehensive coverage. Employer-provided insurance might not cover all scenarios and may be insufficient, especially in a situation where you decide to leave your job. Hence, securing additional coverage can offer a more robust and personalised solution, providing more security, and safeguarding your financial well-being.
● Life insurance is an investment tool: No, it’s not. It’s more of a safety net to save your family and dependents from any mishap or emergency you may encounter in life.
While these are some of the more commonly heard misconceptions about insurance, there are many more myths that are prevalent in the market that deter individuals from buying insurance. It is extremely important to remember that insurance is meant to make life easier, provide protection and backing, and safeguard your future.
The writer is Co-founder, Upstox