Life Insurance policy is a financial arrangement which provides safety net to your loved ones. But many people usually believe that no harm can happen to them and that’s why they don’t want to think about the circumstances their family could face in their absence and in the absence of a robust financial arrangement. Many of us are surrounded by various myths or wrong facts related to a life insurance policy which results in procrastination of the buying decision of the most important form of financial security instrument.

Let’s unveil the common myths associated with a life insurance policy.

Myth 1: Life Insurance Plan will be of use only if I die

Many people relate life insurance policy to a financial arrangement which could be utilized only if one has to die. The biggest myth is that the life insurance policy only offers death benefit to the beneficiaries.

Fact: The life insurance policies which offer only death benefit are term insurance plans. But there are other category of plans too like endowment plans, unit linked plans, money back plans, child insurance plans

To meet your short term or long term financial goals, there are various kinds of life insurance policies (as mentioned) which will be best suited. Life insurance plans offer various kinds of living benefits also such as guaranteed maturity value, bonus, money backs, guaranteed loyalty benefits or additions. Such benefits under your life insurance policy ensure you get a substantial corpus at maturity or during the policy term.

Myth 2: Life Insurance is taken only to Save Tax

Buying a life insurance policy solely to save your tax liability under section 80 C of Income Tax Act is again one of the myths associated with a life insurance policy.

Fact: Tax saving is of course one of the many benefits one can reap by purchasing a life insurance policy as premiums paid towards your policy is tax deductible under section 80 C. But it should not be the sole criteria to buy a life insurance policy. Life insurance is a long term contract between the insurer and the insured. Life insurance should be bought based on your need and financial goals to get the best out of your planned decision. To ensure that you provide a secure future to your child, child insurance plans are best suited. To plan for your retirement, one may opt for a pension plan. For market linked returns, unit linked insurance plans are the best proposition. It is imperative to opt for a life insurance policy based on your goals and objectives rather solely for the purpose of tax saving.

MYTH 3: Insurance Policies are not good investment tools as they don’t provide returns

Life insurance policies are not considered as the ideal investment tool to gain best returns on the amount invested in the form of premium.

Fact: The main objective of buying a life term insurance policy is to attain a financial security for your loved ones. As far as returns are considered, endowment plans offer guaranteed returns to the policyholder and are most suitable for the people with low risk appetite. Also, there are unit insurance plan (ULIP) which is a combination of a pure term insurance plan and an investment plan. ULIPs are market linked insurance plans which allow policyholder to invest in equity, debt or balanced portfolio as per their risk appetite. The returns under Ulips are handsome just like any other market driven investment instrument along with offering a financial security to your loved ones.

It is important not to get surrounded by the myths revolving around a life insurance policy. Life insurance policy should be bought considering the factual information about the insurance plans as per the financial need and requirement of the person getting insured.

AN Nov 19/17

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