It needs to be known that not everyone who buys life insurance sticks to it for the entire lifespan of the policy. The measure of how far a customer persists with a policy is often gauged by what is known as the persistency rate. In FY2016, the persistency rate in the Indian life insurance industry was at a dismal low of 61% in the thirteenth month, as per an article on Livemint. What this means is that after one year of a policy sale, only 61 out of every 100 policies were actually renewed.
Such low levels of persistency often stem from some myths that are associated with these insurance plans in India. Let us explore these in detail.
Common Life Insurance Myths
- Life insurance is expensive:If you have pulled out a calculator and worked out your term insurance premium, then you must acknowledge the fact that those are systematic savings over a period of time, keeping the welfare of your family as supreme. The small premiums that you are contributing today would one day translate into a substantial amount that takes care of the needs of your family once you are no longer there.
- I am too young to take up insurance:On the contrary, it is always a good idea to start working around a term plan calculator that you will find on most insurance portals and do it as early as you can. The benefits of starting early is that you will not have to significantly alter your budget to contribute small premium amounts over a longer period of time. As you age, your premium amounts will start increasing because of the increased risk perception associated with your profile.
- Single people don’t need life insurance
If you’re single you can consider investing in an endowment plan or a money back plan that will allow you a good financial cushion for your sunset years. Retirement planning is one good reason why we need to shatter this myth that single individuals do not need life insurance.
- I have group insurance
Lot of companies today offer group insurance plans to their employees and they are even willing to share the burden of the premium amount by offering a group policy at subsidized rates. Well, no one will deny the fact that these are excellent insurance covers for you. The fact that you will cease to be a beneficiary of such a cover when you leave that particular employer either voluntarily or through termination of your services makes it important for you to think beyond just a group insurance plan.
- Other financial instruments are lucrative
Theoretically, yes! Practically, think again! Try using a calculator to arrive at the expected returns from your term insurance plan, in all likelihood you will not be disappointed with the sum assured and other related benefits as promised in your policy. Compare that to a market-linked mutual fund investment and the element of uncertainty will always be there.
It is important to persist with your policy and not get swayed away by other financial planning instruments that come with a fair amount of risk over the much more stable option of life insurance.The best course of action is to have a diversified portfolio with a variety of investments vehicles, including market and non-market linked instruments.