Term insurance is one of the most popular and affordable forms of life insurance in India. It provides a lump sum amount to the nominee or beneficiary in case of the death of the policyholder during the policy term. However, there are many myths and misconceptions about term insurance that prevent people from buying it or making the best use of it. Here are seven common myths about term insurance in India and the truth behind them.
Myth 1: Term insurance is only for young people.
Truth: Term insurances are suitable for anyone who has financial dependents and wants to secure their future in case of an unfortunate event. While it is true that term insurances are cheaper when bought at a younger age, it does not mean that older people cannot buy it. It is available for people up to the age of 65 or 70, depending on the insurer and the plan. However, the premium will be higher for older people as they have a higher risk of mortality.
Myth 2: Term insurance is expensive.
Truth: It is one of the most cost-effective forms of life insurance as it only covers the risk of death and does not have any investment or savings component. The premium for term insurances depends on various factors such as age, gender, health, lifestyle, occupation, policy term, sum assured, etc. However, compared to other types of life insurance such as endowment or unit-linked plans, term insurance offers a much higher cover at a much lower premium. For example, a 30-year-old non-smoker male can get a term insurance cover of Rs. 1 crore for a policy term of 30 years for an annual premium of around Rs. 10,000.
Myth 3: Term insurance does not provide any benefits if the policyholder survives the policy term.
Truth: It is designed to provide financial protection to the family of the policyholder in case of his/her death during the policy term. Therefore, it does not have any maturity or survival benefit. However, some insurers offer term plans with return of premium (ROP) option, which means that if the policyholder survives the policy term, he/she will get back all the premiums paid as a lump sum amount. However, such plans are more expensive than regular term plans and may not offer adequate cover.
Myth 4: Term insurance does not cover death due to natural causes or accidents.
Truth: It covers death due to any cause, except suicide in the first year of the policy. Whether the death is due to natural causes such as heart attack or stroke, or accidental causes such as road accident or fire, term insurance will pay the sum assured to the nominee or beneficiary. However, some insurers may exclude certain causes of death such as war, terrorism, riots, etc., from the coverage. Therefore, it is important to read the policy document carefully and understand the terms and conditions before buying a term plan.
Myth 5: Term insurance does not require medical tests.
Truth: Term insurance is a contract between the insurer and the policyholder based on the principle of utmost good faith. This means that both parties have to disclose all relevant information honestly and accurately. Therefore, most insurers require medical tests for term insurance applicants to assess their health status and risk profile. Medical tests help in determining the premium and eligibility for term insurance. However, some insurers may offer term plans without medical tests for certain age groups and sum assured limits. Such plans may have higher premiums and lower cover than regular term plans.
Myth 6: Term insurance cannot be bought online.
Truth: It can be easily bought online through the websites or apps of insurers or online aggregators. Buying it online has many advantages such as convenience, lower cost, transparency, comparison, etc. Online term plans are usually cheaper than offline plans as they save on commission and distribution costs. Online term plans also offer more flexibility and customization options such as choosing the sum assured, policy term, premium payment mode, riders, etc. Online term plans also have faster processing and claim settlement than offline plans.
Myth 7: Term insurance cannot be changed or modified after buying.
Truth: Term insurance is a long-term commitment, and one should buy it after careful consideration and planning. However, if there are any changes in one’s life situation such as marriage, childbirth, increase in income or liabilities, etc., one can modify or change one’s term plan accordingly. Some insurers allow increasing or decreasing the sum assured, adding or removing riders, changing the nominee or beneficiary, etc., subject to certain conditions and charges. One can also switch from one insurer to another or from one plan to another if one finds a better option in terms of coverage or cost.