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9 Mistakes to Avoid While Buying Life Insurance Plans
Buying too many Policies
9 mistakes to avoid while buying life insurance plans
Life Insurance is not a Commodity
Life Insurance is not a Commodity
There is bound to be a mistake while buying a life insurance policy as it is not a commodity that can be bought off-the-shelf.
I am young and don't need Insurance
I am young and don't need Insurance
Youngsters who have just started earning may have dependent parents or siblings. The basic purpose of life insurance is to ensure that your family members do not have to grapple with a financial crisis in the event of death of the earning member. Life insurance, therefore, acts as an income replacement tool.
Treating insurance as an investment
Treating Insurance as an Investment
If your sole objective is to generate high returns, do not treat insurance products of any kind as an investment. Buy ULIPs only if you don't have the financial discipline to keep investment and protection separate and are ready to settle for reasonable returns.
Exiting the policy at the wrong time
Exiting the Policy at the Wrong Time
Exiting a traditional plan when only a few years are left to maturity may not be the right decision as a surrender cost still exists, albeit lower as compared to exiting in the initial years. Once bought, the policies should be continued till maturity to optimise the cost-benefit of the plan.
Buying too many policies
Buying too many Policies
Every life insurance policy has several cost-heads, so every time a new policy is bought, the policyholder incurs this cost. This is especially true in the case of ULIPs. If one needs to buy a ULIP, find out the one which is flexible enough to meet the different goals at different life stages.
Buying guaranteed insurance plans
Buying Guaranteed Insurance Plans
The high cost accompanied with returns of a debt asset makes guaranteed plans not a good choice for long-term wealth accumulation. Any insurance plan with guaranteed additions generally has higher premiums and hence the returns get lowered. Guarantees give psychological rather than a real benefit.
Locking-in a long-term, inflexible plan
Locking-in a long-term, inflexible plan
Traditional life insurance plans require higher premium payout corresponding to the sum assured (life cover) they carry. Further, they are largely inflexible in nature. Once the term is chosen, the premiums have to be paid regularly till the end and any early exit is costly.
Not accepting the 'loading' by insurer
Not accepting the 'loading' by Insurer
The revision in premium is through loading, i.e., asking extra premium on medical grounds. If you accept the loading, if any, by the insurer you can at least be sure that the insurer has accepted the risk on medical grounds and the claims process will not be impacted because of it.
Buying in the name of minor
Buying in the name of Minor
Many people buy policies in the name of minor children as the mortality charges would be low and hence the premium. But as children don't have any earning capacity, it doesn't make sense to buy insurance in their name. Instead, it should be bought in the name of the earning member of the family.
Cheapest one is the best
Cheapest one is the Best
Most buyers search for the cheapest term insurance plan and even consider online term plans as they are nearly 25 per cent cheaper than their offline counterparts. The cheapest plan based on your age and desired sum assured may, however, not offer a longer tenure.
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