Insurance cover: Never hide health facts

Abhijit Gulanikar

There are a lot of misconceptions about life insurance products among people which prevent them from taking advantage of various products. Some of them are listed below:

You must start early: Getting insured early in life means your family’s financial future is secured. Plus, you get the benefit of a lower premium because insurance is cheap when you are young and healthy. But this does not mean that life insurance should not be bought if a person is no longer young. There are many milestones in life at which time it is critical to buy more insurance. For instance, when you become a parent or when you take a big-ticket loan. For most people, financial commitments are at their peak when they are 35-50.

As soon as the individual realises the need for additional financial protection for his family, he should buy life insurance.

Wealth creation, protection different goals

Many planners insist that one should not mix wealth accumulation with protection because both goals are different. It is also easier to assess them if these are separate products. However, it is possible to combine wealth creation and protection in a single product that serves both needs. A ULIP allows a policyholder to accumulate a corpus over the long term to meet his financial goals and also gives life insurance cover.

ULIPs are high-cost products

This argument was correct a few years ago but does not hold water now. In the long term (12-15 years), the intermediation cost of a ULIP product is not any higher than that of a mutual fund. Besides, ULIPs are very flexible because the policyholder can use the switching facility to alter his investment mix anytime he wants without any tax implications. ULIPs offer various fund options to policyholders. The fund performance of insurance companies is publicly available and can be analysed before choosing the company and the particular fund. Like mutual funds, ULIP allows customers to invest systematically in monthly or quarterly instalments without adding to the cost.

Hide health facts to lower premium

Disclosing your correct state of health is essential when you buy insurance. In some cases, a correct declaration of health may result in additional premium. Many buyers think that this additional premium is a waste of money. But hiding critical information or submitting incorrect details may result in the insurance claim being denied. In the attempt to avoid paying a little extra premium, the entire money paid during the term of the policy goes waste. More importantly, the whole purpose of insurance is defeated. The policyholder’s family needs the claim amount in the time of distress. The denial of the claim can add a financial stress to the emotional trauma faced by the family.

Insurance is tax-saving instrument

Yes, the tax deduction under Section 80C is an important benefit enjoyed by life insurance. But this tax benefit is not the core benefit of a life insurance policy.

The life cover provided by the policy is the primary benefit and should be the only reason to buy life insurance. This is followed by savings and wealth accumulation. The tax deduction is a small component of the overall decision-making process to buy life insurance. Buying life insurance primarily for tax savings may result in buying multiple policies with small-ticket sizes that may not necessarily help meet the complete insurance needs of an individual.

The author is Chief Officer — Business Strategy, SBI Life Insurance. The views expressed in this article are his own