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Top 10 Life Insurance Myths

Life insurance is not a simple product. Even term life policies have many elements that must be considered carefully in order to arrive at the proper type and amount of coverage. But the technical aspects of life insurance are far less difficult for most people to deal with than trying to get a handle on how much coverage they need and why. This article will briefly examine the top 10 misconceptions surrounding life insurance and the realities that they distort.

Myth #1: I’m Single and Don’t Have Dependents, so I Don’t Need Coverage
Even single persons need at least enough life insurance to cover the costs of personal debts, medical and funeral bills. If you are uninsured, you may leave a legacy of unpaid expenses for your family or executor to deal with. Plus, this can be a good way for low-income singles to leave a legacy to a favorite charity or other cause.

Myth #2: My Life Insurance Coverage Needs Only Be Twice My Annual Salary
The amount of life insurance each person needs depends on each person’s specific situation. There are many factors to consider. In addition to medical and funeral bills, you may need to pay off debts such as your mortgage and provide for your family for several years. A cash flow analysis is usually necessary in order to determine the true amount of insurance that must be purchased – the days of computing life coverage based only on one’s income-earning ability are long gone.

Myth #3: My Term Life Insurance Coverage at Work Is Sufficient
Maybe, maybe not. For a single person of modest means, employer-paid or provided term coverage may actually be enough. But if you have a spouse or other dependents, or know that you will need coverage upon your death to pay estate taxes, then additional coverage may be necessary if the term policy does not meet the needs of the policyholder.

Myth #4: The Cost of My Premiums Will Be Deductible
Afraid not, at least in most cases. The cost of personal life insurance is never deductible unless the policyholder is self-employed and the coverage is used as asset protection for the business owner.

Myth #5: I Absolutely MUST Have Life Insurance at Any Cost
In many cases, this is probably true. However, people with sizable assets and no debt or dependents may be better off self-insuring. If you have medical and funeral costs covered, then life insurance coverage may be optional.

Myth #6: I Should ALWAYS Buy Term and Invest the Difference
Not necessarily. There are distinct differences between term and permanent life insurance, and the cost of term life coverage can become prohibitively high in later years. Therefore, those who know for certain that they must be covered at death should consider permanent coverage. The total premium outlay for a more expensive permanent policy may be less than the ongoing premiums that could last for years longer with a less expensive term policy.

There is also the risk of non-insurability to consider, which could be disastrous for those who may have estate tax issues and need life insurance to pay them. But this risk can be avoided with permanent coverage, which becomes paid up after a certain amount of premium has been paid and then remains in force until death.

Myth #7: Variable Universal Life Policies Are Always Superior to Straight Universal Life Policies Over the Long Run
Many universal policies pay competitive interest rates, and variable universal life (VUL) policies contain several layers of fees relating to both the insurance and securities elements present in the policy. Therefore, if the variable subaccounts within the policy do not perform well, then the variable policyholder may well see a lower cash value than someone with a straight universal life policy.

Poor market performance can even generate substantial cash calls inside variable policies that require additional premiums to be paid in order to keep the policy in force.

Myth #8: Only Breadwinners Need Life Insurance Coverage
Nonsense. The cost of replacing the services formerly provided by a deceased homemaker can be higher than you think, and insuring against the loss of a homemaker may make more sense than one might think, especially when it comes to cleaning and daycare costs.

Myth #9: I Should Always Purchase the Return-of-Premium (ROP) Rider on Any Term Policy
There are usually different levels of ROP riders available for policies that offer this feature. Many financial planners will tell you that this rider is not cost-effective and should be avoided. Whether you include this rider will depend on your risk tolerance and other possible investment objectives.

A cash flow analysis will reveal whether you could come out ahead by investing the additional amount of the rider elsewhere versus including it in the policy.

Myth #10: I’m Better off Investing My Money Than Buying Life Insurance of Any Kind
Hogwash. Until you reach the breakeven point of asset accumulation, you need life coverage of some sort (barring the exception discussed in Myth No.5.) Once you amass ₹. 1 million of liquid assets, you can consider whether to discontinue (or at least reduce) your million-dollar policy. But you take a big chance when you depend solely on your investments in the early years of your life, especially if you have dependents. If you die without coverage for them, there may be no other means of provision after the depletion of your current assets.

The Bottom Line
These are just some of the more prevalent misunderstandings concerning life insurance that the public faces today. Therefore, there are many life insurance questions you should ask yourself. The key concept to understand is that you shouldn’t leave life insurance out of your budget unless you have enough assets to cover expenses after you’re gone. For more information, consult your life insurance agent or financial advisor.

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What is Health Insurance?

Health insurance is a type of insurance coverage that covers the cost of an insured individual’s medical and surgical expenses. Depending on the type of health insurance coverage, either the insured pays costs out-of-pocket and is then reimbursed, or the insurer makes payments directly to the provider.

Health Insurance in India

Health insurance in India is still for the privileged few and is, however, still largely in the form of a plain vanilla cover, mediclaim, introduced a decade-and-half ago. Customization is used in group health insurance by corporates for their employees. In the case of the individual, customization has not taken off despite the fact that we now have different products such as hospital cash, critical illnesses and so on. For any product to be customized, the awareness level has to be high.


Waiting period in Health Insurance

When you sign up for a new health insurance policy, it doesn’t get implemented with immediate effect. The policy comes into effect after a ‘waiting period’, which depends on the kind of insurance and other factors, such as age, your medical history and the company. In other words, the insurer is liable to entertain any claim amount filed only after this waiting period.

If an individual undergoes an accident or undergoes hospitalization during the waiting period, the customer may not be covered for a loss. As mentioned before, the concept of waiting period exists across different kinds of insurance policies, and the quantum of waiting period may differ depending upon the insurer and the nature of the insurance policy.

However, following are the broad indicators of waiting period. There is an initial waiting period of 30 days, which goes up to 90 days in some cases, from the effective date of the policy. Some insurance policies may permit treatment for accidental external injuries with a minimum of 24-hour hospitalization.

Pre-existing diseases may not be covered in the first 2-4 years of the policy depending on your age and the nature of the policy. A pre-existing disease refers to any medical condition of an individual prior to the commencement of the policy. Now the policy may be effective for any other ailments in the first few years of the policy. Buy any claim filed for illness related to the pre-existing disease will not be covered in the first 1-4 years of the policy as stated in the policy document.

This feature is most common in insurance policies designed for senior citizens. Also, the insurer may insist that you stick with the same insurer if you want the cover to continue without further waiting periods in future.

The third is the ailment-specific waiting period, during which an ailment will not be covered. This again varies from company to company. But some common ailments that involve waiting periods include, ENT disorders, polycystic ovarian diseases, diabetes, osteoarthritis, osteoporosis, hypertension and hernia. These ailments are usually covered only after two years from the date of commencement of the policy.