Ramesh, 35, worked for one of the biggest construction firms in the country. As part of additional perks and benefits, he had received a group health insurance cover. Ramesh never bothered to get an individual health insurance cover. Tragedy struck just when he was changing jobs, and was technically unemployed for a few days. Ramesh had to bear the burden of a brief yet costly hospitalisation as he had no cover while changing jobs. One of the most widely held insurance myths is that an individual plan is not needed if your employer has provided an insurance cover. The lack of financial awareness has given rise to several myths related to insurance and financial security. While some consider having an insurance plan as a waste of money, others think the cheapest policies are the best plans. Here are 7 insurance myths busted.
Life insurance is for saving taxes
It has become a popular trend to sell life insurance policies as a tax saving instrument. Tax saving is one of the many benefits of having a life insurance policy. The primary reason you should have a life cover is to protect your family financially from sudden and unfortunate incidents. In case the breadwinner is not present to take care of the family, life insurance ensures their needs are taken care of. Some life insurance policies also help in augmenting post-retirement income. As a thumb rule, you should have a policy equal to 10 times your annual income.
Young people don’t need insurance
Closely related to the myth that insurance policies are a tax saving instrument. Many people start at a lower level of income when they are young and so they presume that an insurance policy is not needed. Young people also tend to delay buying insurance as they are healthy and have many years left to get one. But as you grow up, the premiums of insurance policies also inch up. Getting health or life insurance policy is very cheap at a young age when the body is free of illness and diseases.
Policy in the name of minor
It very popular to take a life insurance policy in the name of a minor. Insurance agents have made it a good emotional selling point. But buying life insurance in the name of a minor could be counter-productive. A life insurance policy essentially guarantees financial security in the absence of the breadwinner. In case of an unfortunate and untimely demise of the earning member, the policy in the name of the minor will be of no use. It is better to take a policy with the minor or child as a beneficiary.
The Cheapest Policy is the best Policy
The Indian thought process which is overtly guided by the price of a product may not work while buying a policy. For instance, when you buy health insurance, two policies with different benefits will not come at the same price. While taking a health policy, the health condition and the future needs of the person should be kept in mind. Even though a basic policy may be cheaper, it may have a lot of exclusions, which will cost a lot more at the time of hospitalisation.
Cover provided by an Employer is Sufficient?
The harrowing time that Ramesh had to go through is enough to convey the importance of having an individual policy. The group insurance plans provided by employers are valid only until you are working in that company. Sometimes having just one policy is not enough as the cost of medical treatment could be exorbitant. Your base medical insurance may be able to cover only a part of the treatment, so having a top-up or a super top-up health cover would be a prudent step.
Benefits start flowing from the first day
People generally wait to reach a certain age before getting an insurance cover. Health insurance is bought when the chances of hospitalisation are high. The problem with this approach is that people don’t realise that insurance policies don’t give benefits from the first day. Health insurance policies generally have a ‘waiting period’ before which the claim against specific ailments is not covered. Similarly, life insurance policies have a ‘contestable period’, which is typically two years from the date of purchase. If a policyholder dies within the contestable period, his claim may get rejected by the insurer.
All benefits are lost if a policy is not renewed immediately
While it is better to renew a policy before it expires, all benefits are not lost if the policy is not renewed immediately. A policyholder can renew an existing health insurance policy within 15 days of expiry and he will be considered as ‘continuously covered’ in terms of continuity benefits such as waiting periods and coverage of pre-existing diseases. However, if a major medical expense arises in those 15 days, the policyholder will have to bear the cost from his pocket.