If you are one of those people who buy an insurance policy just to save tax, then you must know that it’s not the best way to avail tax benefits. Below are four common myths about insurance which people need to know to decide what’s best for them:
Only for Protection
It is true that insurance policies cover the damage to valuables or health or the risk of loss of life. The option of buying insurance should not be considered as an investment that helps to generate high returns. All insurance products are not available with tax benefits. There are some single premium plans that offer less than 10 times the premium as life coverage, do not allow tax benefits under Section 80C and Section 10(10D).
If you are seriously looking for an objective just to save tax, then you have various options to select from. Based on risk profile and age, customer can select between debt and ELSS options which post offices provide such as NSC or PPF.
Majority of insurance products do not generate inflation-beating returns. Endowment plans give returns not more than 5-6 percent. Under ULIP plans, policyholders receive an equity-related return which can go up. But, these policies involve risks. Due to its 5-year lock-in period, insured has to risk the fund manager’s inefficiencies and the rate of exiting it in case policyholder wants to terminate it in the initial years.
• Expensive Products are Good
Before purchasing a policy, compare its premium with similar products and weigh rates against the features. Generally, policies come with high sub-limits are available at affordable rates, but does not fulfill the purpose of a trouble-free medical report. Premiums of online policy can be half that of offline offline policies.
• Agents don’t know everything
Usually, agents sell you policies which net them more commissions. Ask your doubts about a product to your insurance service providers, including its suitability, returns and lock-in period.
• Keeping mum
When customer applies for a policy, insurer will mail him or her documents. Buyer will get these documents after paying the premium, IRDA allows policyholders 15 days of time to go through it and then take a decision. If you feel the policy is not suitable, then return it to the insurer and ask for a refund within this 15-day period. Both health and Life insurance plans include this facility. When you return the policy, send a written request to the insurer to cancel the plan and pay back the refund