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Why Term Insurance is Not Popular - Demystifying the Myth

Term insurance provides coverage for just a specified period. If the insured dies within that period, the nominee will receive death benefits. Term insurance involves much lesser premiums than permanent life insurance. Nevertheless, it is of no cash value, regardless of how much you invest in it. Simply put, you are not going to see a cent of that money in your lifetime. You are ensuring the safety of your dear ones, in the unfortunate event of your demise. In the chaotic world, term insurance becomes all the more essential, especially when you have people dependent on you financially. 

Term Insurance gives you death benefits. For instance, you can easily get a cover of 35 lakhs by paying just about INR 400-500 per month. Some packages provide coverage of even 2 cores. Nevertheless, it all depends on your earning potential as well as payable premium. Anyone can easily ensure the future of their loved ones beyond his/her lifetime. In times of global pandemics, such insurances give you much-needed peace of mind. However, term insurance isn't popular with people from all walks of life. There are a few myths that cloud people's judgment on taking a term insurance policy.

Myth #1: Term Insurance only Covers Death

Term insurance should ideally cover you of all uncertainties, including death. Contrary to most people's beliefs, it does. You are covered for death, diseases, and disabilities via a few add-ons. With medical insurance, you are covered for diseases you may contract later. Maintaining transparency in sharing your medical details plays a crucial role while making claims. Similarly, getting term insurance with a few rider benefits covers you on road accidents, resulting in deaths or disabilities.  

Myth #2: Death Benefits are Seldom Paid Out

As per the latest regulations, insurance companies have up to 30 days to pay a claim or repudiate. But, the average claims turnaround time is about 7 days. Moreover, the repudiation rate has come down drastically in the last decade. The top four players who account for 80% of the insurance market maintain a Claim Paid Ratio of 97-98%. Contrary to the popular misconception that insurers keep finding reasons to repudiate, they try to find reasons to pay the claim. Even in most of the repudiation cases, the claims may not have done properly or some concerning details may not have been disclosed earlier. Be sure to disclose information on medical conditions and smoking habits, and inform your nominee about your term insurance policy.

Also, there are some types of deaths not covered under the term insurance policy:

  • Deaths occurring from natural calamities are not covered under term insurance.

  • Deaths caused by intoxication from drinking, smoking, or drugs cannot be claimed.

  • Homicides committed with the intention of making claims aren't covered. Any sort of doubt along this line is seriously investigated until the company is sure that the insured has died of natural causes.

  • Deaths caused by sexually transmitted diseases (STDs) such as HIV/AIDS are not covered under a term insurance policy.

  • Self-inflicted injuries that result in death, including ones caused by sport or adventurous activities, don't come under coverage. 

Myth #3 Smokers are not eligible to Apply

Disclosing details regarding your smoking habits to the insurance company is a must. It can make the difference between a successful claim and repudiation later on. Almost all companies provide term life insurance for smokers. To be precise, they entertain typical smokers and preferred smokers. A table rated smoker is on the borderline. The premium will get a bit higher than usual. Not just smokers, occasional drinkers are eligible for term insurance.

Myth #4 The Premiums Increase Unexpectedly

The premiums do not increase unless you opt for increasing coverage. Additionally, if you started smoking, the premiums will be increased, considering health risks. Besides that, you can enjoy even premiums throughout the policy term. For just about INR 9000 per month, you can enjoy a Crore of insurance.

Myth #5 Term Insurance is a Luxury

Even in metros, only 1 in 5 urban youth is protected via term insurance. Youths mostly spend in high priced purchases, travel, entertainment, etc. They still think of term insurance as a luxury. Term insurance premiums are in the range of 1-1.5% of your total income. The annual premium is usually lower than monthly premiums. Hence, when someone says that term insurance is costly, it is because of the lack of awareness. Moreover, the premium you pay in your late twenties will remain the same in your 50's for a few lakhs to a Crore of insurance.  Ultimately, term assurance becomes more essential as your health meteorites with aging.

Myth #6 Term Insurance is only for Families

When one starts earning, he/she attains a financial value. In the case of unmarried youth, the financial value is used by him/her along with the parents, siblings, or guardians. Finance is used to cover the needs and wants of the group. When you feel like you do not have a traditional dependent, think of who is using your money or who will possibly use it in the future. Moreover, when you start your term insurance by 25, rather than at 50, you may have to pay only half the premium for a lifetime.

Myth #7 Term Insurance is Mostly about Workforce

Term insurance isn’t exclusively for the workforce. Homemakers are as big a segment as a workforce. They offer personalized cooking, day-care for kids, housekeeping, tutoring, accounting, and budgeting.  They are of financial value nonetheless and thereby warrant term insurance. According to an Economic Times report, the economic value of a homemaker was quantifiable to INR 45,000.

Myth #8 The Policy Involves too much Red Tape

Taking a term insurance policy is as simple as 1-2-3. You can apply it online within hardly 30 minutes of your time. If you prefer to deal with people who would advise you, talk to an agent advisor. Do not be intimidated by possible complexities in the process. It is the responsibility of the insurance company to walk through every aspect of the policy.

Myth #9 Group Insurance Substitutes for Term Insurance

There are plenty of gaps in this kind of thinking. Firstly, group term insurance neither covers you to the extent you should be covered for, nor can be customized to suit your needs. Secondly, you will not be under any cover when you are in between jobs. Switching jobs is pretty common in this age and era. 

Myth #10 It's too Early to get Term Insurance

Anyone above the age of 18 qualifies for term insurance. Beyond that, no one is too young to consider taking a term insurance policy. The earlier you get the policy in force, the lower the premium you have to pay. After the completion of the term, you can easily switch to the next term policy without further medical examinations.

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