Demystifying Insurance After Death of Policy Holder

Episode No 2:

Common Myths About Life Insurance Payouts

Life insurance is a valuable tool for financial security, but many people have misconceptions about how payouts work. As a SEBI Registered Investment Advisor, I want to clear up some common myths about life insurance payouts in simple language to help you make informed decisions.

Myth 1: Payouts Are Always Tax-Free

Many believe life insurance payouts are completely tax-free. While it’s true that in India, death benefits are generally exempt under Section 10(10D) of the Income Tax Act, there are exceptions. For example, if the policy doesn’t meet specific conditions—like the premium exceeding 10% of the sum assured for policies issued after April 1, 2012—the payout may be taxable. Always check the policy terms and consult a tax professional to avoid surprises.

Myth 2: The Payout Process Is Complicated

Some think claiming life insurance money is a long, complex process. In reality, most insurers aim to make it straightforward. Beneficiaries need to submit a claim form, the death certificate, and a few other documents. If the policy is active and all details are correct, the claim is usually processed within a few weeks. Delays can happen if documents are missing, so keeping records handy simplifies things.

Myth 3: Only Family Members Can Be Beneficiaries

Another myth is that only close relatives, like a spouse or children, can receive the payout. In fact, policyholders can name anyone as a beneficiary—friends, charities, or even trusts. You have the freedom to decide who benefits from the policy, if it’s specified clearly in the policy document.

Myth 4: Payouts Are Always Paid as a Lump Sum

Many assume the death benefit is always paid in one go. While lump-sum payments are common, beneficiaries can often choose other options, like receiving the money in instalments (annuity) or keeping it with the insurer to earn interest. These choices depend on the policy terms and can offer flexibility based on financial needs.

Myth 5: Life Insurance Payouts Are Delayed Indefinitely

Some fear insurers delay or deny payouts. While disputes can arise if the policyholder misrepresented facts or premiums were not paid, reputable insurers process valid claims promptly. Reading the policy terms carefully and ensuring timely premium payments can prevent such issues.

By debunking these myths, you can better understand life insurance payouts. Always review policy details and seek advice from trusted professionals to ensure your loved ones are protected without confusion.

Save and Share it to someone who may need it.