The life insurance policy aims to ensure financial security for your loved ones when you are not around. A life insurance policy pays the sum assured amount to your nominee, in the event of your untimely demise. The amount payable can be used to pay off debt, children’s education, or for ensuring financial independence for your spouse. It is important not to be hasty in buying a life insurance policy.Understanding the facts, inclusions, and exclusions about the policy should not be ignored else it may turn into a financial disaster and paying premiums may become futile.
When you are looking for a life insurance policy, avoid these following slips.
Buying a Life Insurance merely to save Tax
There are people who make a hurried decision to buy a life insurance policy. They actually buy a life insurance policy merely to avail tax deductions. Making an assumption that the life insurance policy will adequately indemnify their family in case of an untoward event is a mistake in such a scenario.
How to Avoid:
Not doing a thorough research and buying a life insurance policy just to save tax is a blunder. When you are eyeing to buy a life insurance policy, the first step should be to do a proper research or seek the advice of a financial expert. There are various types of life insurance plans, now, which plan will suit you as per your current need is imperative. It is important to go through the life insurance plan features and benefits to assess its suitability as per your financial need. It will help you make a smart decision in buying an insurance policy with adequate life cover.
Insurance is an Investment
Many people have a perception that ‘insurance is an investment’ and, thereby, tend to buy an insurance policy that provides investment returns or guaranteed returns at the time of maturity.
How to Avoid:
It is imperative to first financially secure yourself and your family with a term insurance plan,
which provides pure insurance at an affordable price. Purchasing a saving or investment-related life insurance policy could be the subsequent step.
I am young, I don’t need Insurance
Youngsters who have just started earning and are single have a thinking that they do not need a life insurance plan. However, you may have dependent parents or your younger sister/brother who is financially dependent on you. By not buying a life cover, you are putting them at a financial risk, in case you are not around.
How to Avoid:
It is advisable to buy a life insurance policy that can provide an adequate cover for you. In the event of an unfortunate demise, the policy will pay your family a sum assured amount that can help them meet their immediate and recurring expenses. Life insurance, therefore, acts as an income replacement tool. You only need to estimate the financial liabilities such as parents’ monthly needs, education or marriage of your siblings and buy a life insurance accordingly. Also, buying at a younger age will allow you to pay the most affordable premium throughout your life. Lower the age, the lower is the life insurance premium.
Choosing a Shorter Policy Term
People choose a life insurance plan with a short policy term without understanding its impact. Choosing an insurance plan for a short policy term implies that you are covered for a shorter span of time and in case any unfortunate event happens after completion of the policy term, your family will not get any payout.
If you at an age of 30 years buy a life insurance with a policy term of 15 years, so you get a life cover up to 45 years and suppose a few months after the completion of this term, you met with an accident that leads to your death. In this scenario, your family will not get any penny from a life insurance plan you have bought 15 years ago. At an age of 45 years, you are in the middle of financial liabilities such as repayment of a home loan, your children’s education, marriage, etc.
How to Avoid:
It is advisable to choose the policy with a tenure that can cover all your financial liabilities. On a practical ground, you need to get a life cover till 65- 70 years of age, so that there is no financial liability left by that time and your family members are self-sustained and becomes financially independent. The life insurance policy premium remains the same throughout the policy term.
Buying unnecessary Riders
In a bid to ensure comprehensive protection or as told by the financial agent, many people opt for riders while buying a policy. It is right that choosing riders will enhance protection, but you also need to pay an additional premium. Opting for riders that you don’t need, will only increase your insurance cost.
How to Avoid:
Insurance companies offer several riders with a life insurance policy, so one can pick a rider/s as per their suitability. It is thus wise to check the rider’s benefits and features and then assess whether you actually need it. So, it is important to be vigilant in choosing the rider with your life insurance plan.
Now you know where you may go wrong. Try to avoid the above mistakes while choosing a life insurance policy. By considering the above points, you can make a prudent decision by buying the right life insurance policy with the help of your own wisdom or through certified financial experts. Moreover, you should keep on reviewing your policy periodically to assess your changing insurance needs.
The author Harjot Singh Narula is Founder & CEO, ComparePolicy.com