The Buyt Desk
Life insurance is a safety net that provides financial security in case things go wrong. It is a must for everyone who has dependents. But not many know how to choose the right insurance.
We start our financial journey with savings and investments to reach our financial goals. Our financial goal should be to have some income till death even when we are not earning (post-retirement). Financially securing your and your family’s future is important while you are earning well. Life Insurance is one thing that will provide your family with financial security when you are not there to provide it. The insurance amount can be used by your family to cover the debts, kid’s education, kid’s marriage, spouse’s health or any other commitment the family has. Insurance has its tax benefit as well. Not many understand the utility of insurance and often realise its importance very late. Many do understand the importance of insurance but do not know what to look for while buying insurance and thus either delay the purchase or ignore it. Here are a few common mistakes you should avoid while deciding on a life insurance plan for yourself.
Avoid these common mistakes while going for Life Insurance
1. Not enough coverage – It is not how many insurance policies you have that matters but the sum insured is what that matters. The sum of all your policy coverage should be able to take care of all your liabilities and financial goals. Life insurance will not be of much help if the cover is small for your needs. Do not buy insurance for the heck of buying or just to get tax benefits. Plan your financial goal well and calculate the cover that you may need. Based on this value decide the life insurance you want to buy.
2. Combining insurance and investments – The life insurance premiums are commitments that will make a major difference to your pockets. Even with this big premium, the cover may not be adequate considering the inflation rate. And if you go for insurance that is a combination of both insurance and investment, the insurance portion will be very less and hence the cover will be very less which will not even cover half of your needs. Also, the investment portion of this plan will be inefficient. So by combining insurance and investment, you are getting either. It is better if you keep both components separate.
3. Buying insurance for the child – You have to purchase Life insurance to provide your family financial security by providing some income and covering liabilities when you are no more. When you buy life insurance for your child or grandchild, you are defeating the purpose of life insurance. Neither you nor your child can reap the benefit of the insurance amount. The amount will be locked in for a very long time and you cannot use it. Only buy life insurance for yourself or your spouse.
4. Idea of no returns on premium paid – The regular premiums you pay will not have any returns instantly but only after maturity or claim. Many think that they are not getting returns on the premium paid and hence it goes waste. This is the wrong approach.
5. Buying insurance very late in life – You may feel that you are too young to buy insurance as nothing will happen to you now. But you need to know that premiums go higher as you age and much higher if you have ailments. So it is good to buy insurance when you are young.
6. Giving wrong information – People give wrong information about them to insurance companies. This coming into the light will make insurance null and void. You will lose the insurance cover.
7. Insurance term shorter than liability term – Few buy insurance for a lesser term than the term of liability. Insurance matures even before liability and needs renewal. If things go wrong before renewal or you are unable to renew insurance then the family will be in trouble as they are not covered. Have adequate terms and cover for insurance so that every liability is covered.
