Life Insurance Myths

The following is a great post from Mr.Prakash P. Joshi. I am very thankful to him for his great effort behind creating this article.

It is commonly observed that the concept of Life Insurance has been grossly misunderstood by many persons.

People usually make mistake of mixing the intension / idea of ‘Savings’ & ‘Investment’ with ‘Life Insurance’ i.e. Risk Cover for life and thus end up in sizable financial loss at the end of the day.

The mistakes generally committed can be summarized below: ---

1] Taking the Life Insurance policies of young ones {under the pretext of planning for their ‘future’ needs like education / marriage etc...} (Normally below the age of 18) as well as of older people beyond the earning age of say 60

2] Taking flashy scheme policies other than ‘Pure Term’ plan requiring large premiums to pay but relatively less amount of ‘Cover’ during the age between say 20 to 60 (normally income earning years when there are likely dependent family members on them) and in fact when the ‘Cover’ is needed for larger amount.

3] Taking ULIPs and getting unnecessarily tied-up with the ‘Insurance Company’ for the performance throughout the term. If, one will look at the premium allocation of the ULIPs every year one will get an unpleasant surprises. The price for quitting in between is heavy.

To overcome this, following is suggested: ---

1] Preferably take the ‘Life Insurance’ only when the person completes the education and starts earnings and there are other family members who are dependent on his/her regular income. I.e. say between the Ages group 20 to 60

2] Take a ‘Pure Term’ Life Cover plan initially for only 10 years, say at the age of 20 and then again after taking a review take a similar ‘Pure Term’ Life Cover for 30 years at the age of 30 for a sizable Sum Assured.

3] Never to mix two concepts / ideas of ‘Savings’ & ‘Investments’ with ‘Life Insurance’ Cover so the saved amount by paying most reasonable amount of the premium (for the large Sum Assured) of the pure term plan can be independently invested in either suitable ELSS – for Income Tax saving purpose or in any suitable open ended diversified Equity Mutual Fund scheme with flexibility for value growth purpose.

Please compare premium tables for “PURE TERM LIFE INSURANCE COVER” {without refund of premiums paid} of all the Life Insurance Companies in India before taking any decision. Never get carried away by the ‘advises’ of so called “Consultants” as most probably they are not for YOUR benefit.

Comments welcome….

Thank You! And Best Luck!

Yours truly,

Prakash P. Joshi.

E-mail ID >>>> ppj_2001@yahoo.com

** I am not an Insurance Advisor / Agent.