Top Life Insurance Myths to Get Rid Off

Nutan Gupta

05 Oct 2016

Most people look at insurance as something that helps them reduce taxes and save for future. Unfortunately, these are secondary benefits of insurance and not the primary reason why it should be bought.

Insurance is bought to provide financial security to dependents in case of death of the policyholder. It should be large enough to provide income replacement of the policyholder and help clear off all outstanding debts. But when it comes to insurance, there are many more myths that people believe in. Lets see the reality behind some of these myths.

A very big myth doing rounds is that life insurance is costly. The main reason behind this belief is that people think of survival benefit plans (like endowment, money-back, etc.), when they want to buy insurance. These are of course costly as these are products with dual benefit of insurance and savings. But one can easily buy insurance policies with large enough covers at very low prices, if one goes for plain term plans. A plan with insurance cover of Rs 50 lac just costs about Rs 6,000 a year! So it’s not that costly after all.

Now the young and single believe that they don’t need any life insurance cover as the product is mainly marketed for its importance for those with families. But it must be noted that at young age, insurance policies are more economical since premiums are low for low-age groups. Premiums tend to grow higher later in life as the life expectancy risks increase with age. More importantly, this cover can be extended to the family when one starts it in future.

Working professionals are also plagued by a myth that the insurance provided by their employer is enough for them. Unfortunately, if the job is discontinued or the person retires, they will lose their insurance covers. And since premiums are very high at later stage of life, it can be very costly to buy sufficient coverage later on.

These are some of the myths that people have and that cause a lot of harm to people’s financial lives. So sooner these are busted and necessary actions taken, better it is.

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mutual-fund

Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


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Top Life Insurance Myths to Get Rid Off

Nutan Gupta

05 Oct 2016

Most people look at insurance as something that helps them reduce taxes and save for future. Unfortunately, these are secondary benefits of insurance and not the primary reason why it should be bought.

Insurance is bought to provide financial security to dependents in case of death of the policyholder. It should be large enough to provide income replacement of the policyholder and help clear off all outstanding debts. But when it comes to insurance, there are many more myths that people believe in. Lets see the reality behind some of these myths.

A very big myth doing rounds is that life insurance is costly. The main reason behind this belief is that people think of survival benefit plans (like endowment, money-back, etc.), when they want to buy insurance. These are of course costly as these are products with dual benefit of insurance and savings. But one can easily buy insurance policies with large enough covers at very low prices, if one goes for plain term plans. A plan with insurance cover of Rs 50 lac just costs about Rs 6,000 a year! So it’s not that costly after all.

Now the young and single believe that they don’t need any life insurance cover as the product is mainly marketed for its importance for those with families. But it must be noted that at young age, insurance policies are more economical since premiums are low for low-age groups. Premiums tend to grow higher later in life as the life expectancy risks increase with age. More importantly, this cover can be extended to the family when one starts it in future.

Working professionals are also plagued by a myth that the insurance provided by their employer is enough for them. Unfortunately, if the job is discontinued or the person retires, they will lose their insurance covers. And since premiums are very high at later stage of life, it can be very costly to buy sufficient coverage later on.

These are some of the myths that people have and that cause a lot of harm to people’s financial lives. So sooner these are busted and necessary actions taken, better it is.

Have Referral Code?