Before buying a particular term plan, assess your approximate annual income and select a desirable tenure based on the age of your dependents. Moreover, it would help if you examine other crucial factors like a list of existing liabilities and the importance of potential riders regarding long-term family goals.
10 Mistakes to Avoid When Buying a Life Insurance Plan
In India, many insurance providers offer an exhaustive collection of life insurance policies ensuring variable features and benefits. Though the end goal is to secure a family's finances when the primary earning member is not around anymore, it is critical to analyse the common mistakes one can commit while choosing a particular policy.
Here, we have discussed the 10 common life insurance mistakes you must avoid while finalising a life insurance plan to provide your family with the much needed financial protection.
10 Things to Keep in Mind When Buying Life Insurance for Yourself
1. Settling for Low Life Cover
Ideally, a policyholder must go for a life cover of at least ten times their current annual income. Apparently, this hefty assured amount may seem too much when it comes to fulfilling the basic necessities of your family. Unfortunately, one often makes this mistake judging the life coverage value in the present scenario and skips the inflation part.
To ensure a family can achieve its basic needs and fund major events like marriage, child's education, etc., buying a policy with adequate cover is essential.
2. Combining Too Many Riders or Completely Ignoring this Aspect
Simply put, riders are some extra benefits the insurance provider offers to the policy buyer over life coverage for a nominal cost. It is a great way to expand the scope of the assured sum, which people often miss even when they are offered customised deals to grab the opportunity at an affordable rate.
Similarly, adding all possible riders is counted as one of the major life insurance mistakes as it can force the policyholder to adjust other aspects of their budget. Thus the best practice is to add riders as per personal and family goals, which would require proper planning before finalising the add-ons.
3. Entering Wrong Personal Details
Addressing this aspect is crucial, as the insurer may nullify a claim if the policy includes incorrect information. Unfortunately, people enter the wrong medical and personal details, often unintentionally, when they are in haste of availing a limited offer. The worst case is when somebody intentionally puts the wrong information to reduce the premium amount.
Therefore double-checking the details before submitting an insurance application is mandatory to ensure a hassle-free claim filing process later on.
4. Purchasing a Term Plan Without Adequate Research
Choosing the best life insurance plan might be tricky for many people, especially if they are unaware of associated terminologies. Hence we recommend you use online tools available on various websites that help compare policies based on numerous parameters.
To check the relevance of specific life insurance, compare it with others based on end benefits, terms and conditions, premiums, add-on fees for riders, claim settlement time, etc. It would help ensure that your family gets the adequate lump sum amount or continue receiving the sum assured in regular instalments, allowing them to live comfortably without financial stress.
5. Hiding the Particulars from Family Members
Although you regularly pay the premiums of your chosen insurance plan, the insurer will only approve the claim if anybody files a request with proper document support. So, unfortunately, if the insured individual expires and the family members remain uninformed about the life insurance, the whole planning and efforts will go in vain.
Hence, on purchasing a life insurance policy, it is necessary that the nominee must be informed about the same and the process of claiming.
6. Not Buying a Plan Online
Numerous benefits are associated with online life insurance. First, it is more transparent as the potential buyer can compare all favourable plans in one go. More importantly, discounts can be availed on a specific purchase depending on when you buy a plan.
Chances of missing out on these deals are generally higher if you intend to keep an agent as a mediator who may not disclose all the offer details to pack some extra commission.
7. Not Realising Requirements Clearly
What can be counted as one the most prominent life insurance mistakes someone could make before finalising a plan? Undoubtedly not reviewing the financial demands of one’s own family is one of the most common mistakes people tend to commit.
They often drive their purchase decisions based on opinions and insights from friends and relatives. Therefore, although there are no possibilities of short-term exponential returns while investing in a term plan, it is wise to possess one if you prioritise the financial well-being of your family in the long run.
8. Considering Life Insurance as an Integral Part of Their Investment Portfolio
The main objective should stay within the idea of protecting your family's future when buying life insurance. These plans come with multiple tax benefits, so people generally misinterpret them as a 'safer investment tool'.
Such misconceptions discourage people from distributing their wealth to other well-proven investment options. Hence, it may lead their family members to compromise on basic needs while they are not around.
9. Delay in Purchasing a Life Insurance
Financial experts recommend starting early when it comes to making wise decisions financially. As responsibilities are limited and premiums are affordable at a young age, one can easily cope with the payable amounts.
Once family responsibilities and personal lifestyle expenses elevate, controlling the budgetary constraints becomes tougher. Hence securing financial well-being should be on one's to-do list as soon as they start earning regularly.
10. Relying on an Insurance Company Based on Their Claim Settlement Ratio
Many potential policy buyers rule out the companies with lower claim settlement ratios simply assuming that their family may have to face difficulties while claiming the assured amount. However, they often need to remember that companies flaunt claim settlement ratios comprising insurance policies of all sorts, even the most minor claims.
Thus instead of selecting the claim settlement ratio as the sole indicator, one must evaluate other metrics and do a proper background check of a company before spending their hard-earned money to buy a policy.
All of us would agree that placing value on someone's life is impossible. However, securing a family's future with adequate life cover is the only way to avoid the severe consequences all dependents may have to face after the untimely death of the primary earning member. Therefore, consider the above factors to avoid common life insurance mistakes and reap the optimal benefits.
FAQs on Mistakes While Buying a Life Insurance Plan:
In the beginning you should have clarity regarding your basic needs otherwise it will be difficult to select the optimal coverage amount and tenure. After you have this concept cleared, compare the various deals offered by different life insurance providers.
You should purchase a suitable life insurance plan while you are still young. Hence, if you are in your 30s now consider looking for favourable plans already instead of waiting to reach your 40s or 50s.
Important Guides related to Life Insurance
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.