Most Indians are either over-insured in the wrong products or dangerously under-insured in the right ones. The reason? A combination of incomplete information, aggressive agent-driven selling, and myths that have been passed down through generations. Let’s dismantle them.
Myth 1: “Insurance Is Too Expensive”
This is the most damaging myth of all. A basic term insurance plan may cost even less than what many spend on entertainment in a month. A 30-year-old non-smoker could secure ₹1 crore of life cover for a monthly premium of approximately ₹800.
What’s expensive is what most people actually buy: traditional endowment and money-back policies that bundle insurance with savings; and do both poorly. A traditional life insurance policy costs ₹40,000 yearly. After 25 years, you might get ₹18 lakhs back on ₹10 lakhs invested: that’s barely 5% annual return, and inflation eats most of it. Meanwhile, term insurance for ₹12,000 yearly gives the same ₹1 crore coverage.
Myth 2: “Young and Healthy People Don’t Need Insurance”
Term insurance premiums are lowest when purchased young. Coverage costs increase 8–10% with each year of delay. Financial planners recommend getting term insurance as soon as you start earning, ideally in your 20s or early 30s.
If you wait until you develop a health condition, you may be denied coverage entirely or face dramatically higher premiums.
Myth 3: “My Employer’s Group Cover Is Enough”
It isn’t. Employer-provided health and life cover typically ceases the day you leave the organisation. If you switch jobs, get laid off, or take a sabbatical, you’re exposed. The limitations of employer-provided life insurance are often underestimated. Many believe their employer’s coverage is sufficient. However, such policies often provide minimal coverage that may not adequately meet one’s financial needs, especially in cases of long-term disabilities.
Myth 4: “Only the Breadwinner Needs Life Insurance”
Many families skip buying insurance for homemakers. If something happens to the homemaker, the family needs to hire help or one parent stops working— both create financial impact. Homemakers need coverage too, maybe 50–60% of what the earning member has.
Myth 5: “Health Insurance Covers Everything”
While health insurance provides substantial coverage for hospitalisation and certain treatments, they often come with exclusions and limitations. Pre-existing conditions may not be covered immediately, and certain treatments require specific waiting periods before claims can be made.
Always read the fine print. Understand your sub-limits, co-payment clauses, room rent caps, and what’s excluded before you need to make a claim.
Myth 6: “ULIP / Endowment Plans Are Good Investments”
Insurance is not an investment. Investment is not insurance. Mixing the two, as ULIPs and endowment plans do typically means you pay high charges, earn moderate returns, and get inadequate coverage. The cleaner and more wealth-accretive strategy: buy pure term insurance for maximum coverage at minimum cost, and invest separately in mutual funds or index funds.
The Ideal Insurance Stack for Most Indians
| Product | Purpose | Recommended Coverage |
|---|---|---|
| Term Insurance | Life cover | 10–15x annual income |
| Health Insurance | Medical expenses | ₹10–25 lakh per family |
| Critical Illness Rider | Major disease cover | ₹25–50 lakh |
| Personal Accident Cover | Disability & accidents | 5–10x annual income |