Buying Life Insurance? Avoid These 11 Mistakes!

Buying Life Insurance Avoid These 11 Mistakes

Life is uncertain, there are no two ways about it. To save your loved ones from unforeseen financial burdens, debts, and associated stresses, having the right life insurance coverage is absolutely essential. However, with multiple companies offering life policies – and each claiming to be the best – choosing the most suitable policy can be tricky. Ending up with a ‘wrong policy’ can lead to a host of problems, including inadequate protection, poor debt management, unplanned expenses, no tax benefits, & more. Over here, we will highlight some key mistakes you need to avoid, while looking to buy life insurance for yourself & your family:

1. Not Considering Your Insurance Requirements
Life insurance is not something that can be purchased casually or in a rush. Take stock of your precise requirements and financial status – before starting to look for life coverage. In addition to family income and expenses (both at present and future projections), also consider your liabilities and willingness to take risks. By doing so, you will have a clear idea on exactly the type of policy that would provide the best results for your family. After all, buying life insurance should never involve guesswork.

2. Going For The Cheapest Option
The insurance premium amount is, of course, an important factor that needs to be paid attention to. However, it would be a big mistake to simply go for the ‘cheapest’ insurance policy (i.e., with the lowest premium). Consider the coverage/sum assured and the benefits of a policy, compare it with its cost, and decide whether it would serve your requirements. Ask for quotes from multiple insurance companies, before making an informed choice.

3. Choosing A Too Low Sum Assured Amount
A life insurance policy that does not provide the required amount of coverage is practically useless. Instead of selecting a policy only on the basis of your family’s requirements AT PRESENT, take the inflation factor into account, and make sure that the policy will help provide coverage for future needs, like a child’s higher education, a marriage in the family, and others. As a rule of thumb, choose a policy with a sum assured amount that is ~10X more than your present yearly income.

4. Not Doing Adequate Research & Policy Comparisons
For the average person, understanding the various terminologies and jargons associated with a life insurance policy can be challenging. As the buyer, you need to do the necessary research – to understand all the different terms & conditions, parameters, and other key factors. If required, work with a leading insurance broking company and get detailed insights on all the policy features. The more information you have, the better will be your insurance purchase decision.

5. Ignoring The Policy Details
Not reviewing the terms & specifications of a life insurance policy can cause undue stress and confusions in the long-run. Never ignore the fine print and policy-related details, and pay particular attention to coverage, policy renewal options, exclusions & other related clauses. Seek clarity on any aspect that you might be unsure about. Life insurance policy documents are technical and complex, and you cannot afford to gloss over the minute yet important details.

6. Delaying The Life Insurance Purchase Decision
When a person is young and healthy, getting insured may not rank high in his/her list of financial priorities. This, in turn, can lead to the life insurance purchase decision getting delayed. The policy premiums tend to increase with advancement of age, and there can also be risks of a potentially problematic health hazard cropping up (which might cause a person to become uninsurable). Get yourself covered nice & early, and meet your insurance goals without having to pay exorbitant premiums.

7. Not Being Transparent With The Insurance Provider
It is important to be completely honest with your health insurance in terms of providing personal health-related insurance while purchasing the insurance. Concealing accurate information at that crucial moment may hinder the insurance provider’s ability to pinpoint your specific healthcare needs, significantly increasing the likelihood that your health insurance policy fails to address every requirement. This may increase the chances of health claim rejection at the moment in need. Hence, it is important that you disclose every material fact such as your medical history, current medical records, existing life insurance policies in force and others.

8. Not Understanding The Difference Between Insurance and Investment
A key objective of getting life insurance is getting protection and security of your family’s savings. However, an insurance policy is NOT an investment tool per se, and it would be a big mistake to consider the two to be the same (the primary goal of investment is getting the best returns for a certain risk profile). At best, insurance can be a part of your ‘investment portfolio’. The policy you choose should complement your investments, and not be an alternative for them.

9. Considering Claim-Settlement Ratio As The Only Important Factor
The claim-settlement record of a life insurance service provider should never be the only factor you look at, while filtering through different policies. While a significantly low claim settlement ratio is obviously a point of concern, you need to keep in mind that this ratio generally includes all types of claims (including the very minor ones) – and as such, may not give you the proper picture. Do a thorough background check of the insurance companies you have shortlisted, check all the key metrics, and then make your choice.

10. Not Considering Policy Riders; Providing Wrong Information
Instances of buyers missing out on additional benefits on life coverage policies (that can be availed by paying more premium) are rather common. Make sure you know all about these ‘riders’ of the policy you are planning to buy. Not considering the ‘riders’ can cause you to miss out on essential coverage benefits, like accidental death benefits, critical diseases, disabilities, and more.

In addition, make sure that you disclose all pertinent information to the insurance service provider. Maintain complete transparency about your lifestyle, medical records and other details, to avoid running into problems later. Misrepresentation of information can even lead to policy rejections.

11. Selecting The Wrong Type Of Life Coverage
There are different types of life insurance, each with its own advantages and key features. For instance, while a ‘Whole Life Insurance’ offers lifetime coverage, a ‘Term Life Insurance’ is valid for a pre-defined period of time (e.g, 10 years). A ‘Universal Life Insurance’, on the other hand, includes death benefits as well. Not all policies are the same, and you need to select the policy type that meets your financial goals the best.

With growing awareness and favourable regulatory updates, life insurance penetration in India is gradually increasing (albeit slowly). The decision of choosing a particular policy from the plethora of options has to be backed by proper research, and that’s precisely where the importance of working with a reliable & reputed insurance broker company comes into the picture. With expert guidance & assistance, buyers can find the life coverage that is ideal for their requirements, and ensure complete peace of mind.