Buying life insurance is an important step towards putting in place a prudent financial plan for yourself and your loved ones.
What is life insurance?
Life insurance is primarily meant to provide financial security for your dependents in the unforeseen scenario that you are no longer able to provide for them.
Your young children, elderly parents or spouse may be dependent on the income that you bring in for their livelihoods. Having life insurance means they will receive a payout after you're gone or incapacitated through injury or illness, to provide a standard of living that is equal to what you would have been able to provide them.
This makes it crucial that you crunch your numbers meticulously to ensure that the payout your loved ones receive will be sufficient for them, until they are able to attain financial independence.
Even after understanding this, there may be several barriers preventing you from purchasing such policies. This includes not wanting to contemplate negative or unforeseen scenarios in life as well as being unsure about which policies you should buy after hearing common misconceptions and myths surrounding life insurance.
To help you make a more informed and clearer decision, we debunk three common myths about life insurance policies.
#1 "Buy term and invest the rest?"
The reason why this is one of the most prevalent myths when it comes to buying life insurance policies, is because it does hold true for some people. Hang on a minute – this does not mean it will definitely be true for you.
There are three main weaknesses to this line of thought. Firstly, it assumes you will invest the "rest", rather than end up spending it. Secondly, it assumes that you know how to invest the "rest" and lastly, it also assumes you will successfully invest the "rest".
For starters, many may procrastinate or are daunted to start their investment journey. This means they will never end up investing the "rest" of the money even after buying term insurance.
For those who do start investing, they will need to faithfully re-invest any returns as well as a portion of their future salaries over the next 20 to 30 years. This takes decades of discipline and vigilance, as the repercussions of neglecting investing will only be felt in retirement rather than instantaneously.
Even for those have the discipline to invest over the long-term, there's a chance that they let their emotions negate their efforts. This is because markets are volatile, and rather than take a long-term stance, many could end up buying or selling investments impulsively.
Another downfall of the "buy-term-invest-the-rest" mantra is that if an unforeseen circumstance occurs early on in your life, you may not have had the time to accumulate enough for your loved ones' futures. Similarly, even if you had been conscientiously investing over several decades, if an unforeseen circumstance befalls you during a deep recession, your loved ones may not have the expertise or financial muscle to allow your investments to ride out market volatility.
Everyone's needs and abilities are different. Just because this argument holds true for some people does not mean everyone should subscribe to it.
#2 Only buy life insurance if you have dependents
This myth is perpetuated by the fact that life insurance only leaves behind money for your loved ones. If your loved ones do not depend on your income for their livelihoods, you may think it's perfectly fine to leave nothing behind. Sure, this may be true…but there are also a few other things you should consider.
Even if you do not have dependents, you need to weigh all the financial implications your passing may have on your loved ones.
An example includes sharing your home with your grown-up children, or if you are a stay-at-home mom. In these situations, even though your loved ones are not dependent on your income, they may be forced to shift out in order to pay off your housing loan, or that the surviving parent may have to hire help to care for their children, cook and keep up with housekeeping.
Beyond this, you may also want to leave behind a sufficient sum to cover your final expenses so that you don't financially burden your loved ones. Another consideration could be leaving a legacy for the next generation even if they do not require it for their daily living expenses, or to a charitable cause of your choice.
#3 Young and healthy individuals don't need life insurance
The myth that young and healthy individuals do not need to buy insurance is not accurate. Although it may seem a logical deduction from the outset, there are deeper considerations you need to think about.
Buying life insurance earlier in life means paying a lower premium. You also have to accept the fact that even young and healthy individuals can unexpectedly become ill. Once diagnosed with a major illness, you may not be eligible to buy or have strict exclusions on future life insurance policies when you decide to purchase it.
In certain scenarios, you could even complete your payment obligations much earlier in life and enjoy a longer period of coverage.
What you should be doing
While it may serve many of you better to simply ignore these myths, it is too simplistic to look at it that way. Diverse perspectives to your insurance needs and may help you better protect your loved ones' futures.
AIA Pro Lifetime Protector (II) is a flexible all-in-one solution with comprehensive protection against death, disability and multi-stage critical illnesses. This policy also offers an investment component to meet your changing insurance needs, giving you the option to reduce your coverage and focus more on wealth accumulation for your golden years.
This way, your family's financial futures will be protected while they're still dependent on you, and once your children and/or dependents are financially independent, you can choose to place more emphasis on your retirement needs. Even as you pivot towards building your wealth, you will continue to retain protection against death, disability and critical illnesses.
AIA offers solutions made simple to keep up with your ever changing wealth accumulation and protection needs. Get your financial planning on track. Take the first step and speak to us at
1800 248 8000.
1800 248 8000.