MYTH
I am too young to need any form of insurance at this stage in life. My family does not need life insurance, as I am in good health now, which means any payment towards a life insurance policy is an utter waste of money. I am also insured by my employer as part of a group life insurance, which takes care of my need for life insurance, so why should I waste money over a life insurance on my own? Anyway, the best way to arrive at the amount of insurance cover I need is to multiply my income by 10-12 times.
I have a group health insurance policy from my employer, which takes care of my healthcare needs. I am healthy and in no hurry to fall sick, instead of putting money in a health insurance policy, I would rather spend it more productively. Health insurance anyway comes with several exclusions, making it an expensive proposition that pays out in few cases only.
The tax benefits from insurance are really worth it to take both life and health insurance. In case of life insurance, you can avail of tax deductions under Section 80C of the Income Tax Act for up to Rs.1.5 lakh in a financial year. I also stand to gain from the tax-free status of the proceeds from a life insurance policy at the time of its maturity, which is why I look for a savings and investment policy. Similarly, if I opt for health insurance, I could avail of tax deductions under Section 80D of the Income Tax Act up to Rs.25, 000 and Rs.30, 000 (for senior citizens).
REALITY
Life insurance is a good idea for people who have sizable assets, debts and financial dependents. The quantum of life insurance cover that you will need depends on your life stage, income, liabilities and other factors. There is no one-size-fits-all-model or rule of thumb to determine how much cover you need. Every individual’s life insurance needs vary significantly and it’s completely plausible that two people with exactly the same annual incomes will have drastically different life insurance needs due to individual factors such as the dependents, risks, assets, and more. Undergo a needs analysis to arrive at the right amount of insurance that you need.
Group insurance works as long as you are part of the group. So, if you quit your job, the insurance stands cancelled with effect from the day you leave the organisation. The premiums on both life and health insurance depend on your lifestyle. Typically, the healthiest individuals see the lowest premiums, but other factors that affect cost include lifestyle choices like smoking as well as your occupation and hobbies.
There are different types of policies and each covers different types of risks. Analyse the risk you are exposed to and how much of it you can retain and how much you can transfer to an insurance policy. Take insurance based on your needs, and not because there is a tax benefit that comes when you take a policy. At best, the tax benefit should be an added advantage and not the prime reason for taking any form of insurance.
