Life Insurance policies are often surrounded by a canopy of myths and confusion. This is mostly due to a lack of awareness which leads to a lot of hesitant and anxious investors. Thankfully, most of these myths are just that – myths that we’re happy to bust for you so that you make informed, correct decisions.
First, let’s understand that there are broadly two kinds of life insurances –
- Permanent Life Insurance
- Term Life Insurance
Permanent life insurance acts as an umbrella term for insurance plans that do not expire after a set date. These are different from the term life insurance plans which usually promise payment of a specified death benefit within a specific set of years.
Permanent life insurance policies usually combine the generic death benefits with a savings portion that allows the beneficiary to build a cash value, against which you can borrow funds or even withdraw cash to help meet various financial needs. There are broadly two types of permanent life insurance policies :
1. Whole life insurance
Whole life insurance offers the insured with coverage for lifetime. Also, the savings from this type of insurance can grow at a guaranteed rate.
2. Universal life insurance
Universal life insurance offers the same coverage, however, the premium structures vary and the earnings are subject to market fluctuations.
If you are on the fence regarding investing in such policies, we present you with a list of totally untrue but popular theories related to life insurance policies and explain what the fact-of-matter actually is:
Life Insurance is death protection only
A common misconception which is completely untrue. Permanent life insurance policies not only provide death benefits but also allows for cash value growth potential which you stand to benefit from throughout your lifetime.
This cash value growth usually increases on a tax-deferred basis. Not only this, but in most cases, they can be withdrawn income-tax-free.
Loans taken this way can help you meet a host of financial needs or help you meet your goals of a college fund for your children, seed capital for your start-up, your retirement nest egg, or even tide you through unforeseen emergencies.
Life Insurance is only for people with families and children
The association between death benefits and life insurance makes it seem like a pointless endeavor for people without a family and kids. However, the life benefits of life insurance can be utilized to meet a number of financial goals and needs. In fact, it is advisable to buy permanent life insurance at an early age as this allows for better lock-in rates and also provides more time to build cash value for the future.
Term Insurance is the least expensive form of life insurance
Even though the initial cost of term life insurance policies is usually lower than those of permanent life insurance, it can be costlier over time since the cost goes up with age. However, once the term period ends, you do not enjoy any additional benefits.
Also, a very small percentage of term policies pay a death benefit. Thus, this forces you to either buy a new policy, usually at a higher rate, or move forward without coverage.
Permanent life insurance policy, on the other hand, offers lifetime benefits while providing both death benefits and a cash value throughout – which only increases with time.
Buy term, invest the rest
Often, you will find people advising you to buy the lowest cost death protection policy, which is usually term insurance, while investing more amount separately.
However, such investments are not only risky but they also come with no guarantees.
Besides, most people fail to continue investing regularly and often fail to manage their investment plans efficiently. On the other hand, permanent life insurance allows you to relax with a death protection plan along with the ability to build cash value over time, which can help achieve many financial goals throughout your lifetime.
Retirement plans do not require a life insurance plan
Permanent life insurance plays a vital role in any sound long term financial plan and can also come in handy with your retirement plans. Often, in order to leave behind a more stable financial blanket of security for their kids and grandkids, people fail to make the most of their retirement.
However, permanent life insurance can serve as a tax-efficient way of leaving behind a stable financial legacy for your children while you make the most of your retirement assets.
Besides, a permanent insurance plan can help you deal with unexpected financial emergencies during your retirement.
Buying insurance is a one-time headache!
Buying an insurance policy is usually considered just a one-time investment. However, as you move forward in life, your needs change. Major life changes like getting married, having kids, or starting a business could mean a change in the level and type of insurance policy you currently own. This is essential to keep up with your changing needs and ensure that you enjoy a lifetime of protection and the additional benefits that accompany insurance policies.
Listening to hearsay can often result in you missing out on beneficial investment decisions. And thus, it is advisable to consult the experts before making any investment decision.
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