8 Mistakes to Avoid When Buying a Life Insurance Policy

November 24, 2021 Mutual Fund

A term insurance policy that offers basic insurance and financial security to your loved ones in your absence has become an absolute necessity. Several life insurance companies in India offer various types of life insurance policies that you can purchase at an affordable premium. However, to gain the maximum benefit of your life insurance, it is crucial to buy the life insurance policy that best matches your requirements.

In this article we will elaborate on the 8 common mistakes you can avoid when buying a life insurance policy so that you do not have any regrets in the future.

1. Delay in purchasing the policy:

Most young individuals believe that there is no need to spend money on a life insurance policy at their early age. However, buying a life insurance policy at an early age when you are young and healthy is the best way to get maximum coverage at a lower premium. The life insurance premium remains the same for the entire policy year. But as you age, you are more susceptible to illness and other ailments and the risk life insurance companies carry to pay the sum assured also increases. That’s why you have to pay a considerably higher premium with each passing year. Therefore, it is advisable to cover yourself with term life insurance as soon as you start earning.

2. Not purchasing adequate coverage and tenure:

Opting for inadequate coverage to save on the premium is one of the common mistakes that many of us make while purchasing a life insurance policy. Most, unfortunately, decide their coverage and tenure based on the premium they are required to pay. However, doing this will not serve the purpose of life insurance coverage because the assured amount will be insufficient for your family in your absence. It is essential to consider your future goals, inflation, etc. when deciding about what adequate coverage means for you. Furthermore, if you do not opt for an adequate policy tenure and coverage when you are younger, increasing it later will lead to a higher premium as you age. Hence, it is necessary that you opt for adequate coverage and policy tenure. Click here to read the 4 methods to calculate the right life insurance coverage so that your family will not have to suffer in your absence.

3. Providing the incorrect information:

Often in a haste to purchase the life insurance policy or to save on the premium, some people provide incorrect information and even try to mislead or hide vital information. Concealing important personal and health information, intentionally or unintentionally, can lead to the insurance company rejecting your claim. If an insurer finds any misrepresentation of the information you provided at the time of purchasing the policy or filing the claim, they can reject your claim or even cancel your policy. Therefore, when buying your life insurance policy, provide accurate and correct information so the process of filing a claim goes smoother.

4. Not doing proper research:

Most individuals are not well-versed with insurance terminology and often buy a life insurance policy without thoroughly understanding the policy features and terms. If you do not make an informed decision when you buy or renew a life insurance policy, you might end up with a policy that is not suitable for your requirements and paying a higher premium. It is advisable to do your research by comparing the policy features and benefits, premiums, terms and conditions, claim processing time, fees, etc. before choosing a life insurance policy that is best suited for you. Many financial websites allow you to compare a plethora of life insurance policies from different insurance companies. You can also read the customer reviews to gain insights about the life insurance company and its policy. This can help you decide the best life insurance policy for you.

5. Not reading the fine print:

Although finance experts constantly advise us to read all the policy-related documents carefully before buying a life insurance policy, many people still avoid it. The policy document contains all the information related to the policy, including product features, terms and conditions, inclusions and exclusions, exemptions, etc., that a policyholder needs to be aware of. If you do not read the policy document before you buy the life insurance policy, you could face future disputes. So, make sure you read all the policy documents to make an informed decision and avoid any disputes in the future. A policy may have certain terms that you may not understand, seek the assistance of an insurance or financial advisor to clarify your doubts and understand the policy before making a purchase decision.

6. Not informing the family:

Many individuals buy a life insurance policy but fail to inform their families about it. If in case of an unfortunate event, if your family is unaware of your policies or do not find the policy documents, it defeats the purpose of buying the life insurance policy to secure them. You might be regularly paying the premiums, bought adequate coverage and tenure, and chose the right life insurance policy, but your family will not benefit from it if they are uninformed and cannot file the claim. Remember the insurance company will settle the claim only if it is filed.

7. Not understanding the requirements:

People usually buy a life insurance policy based on the recommendations of their friends and relatives. However, buying a policy merely on the basis of another’s recommendation, without assessing its suitability for you, can become the biggest mistake when you purchase the policy. It is best to buy a term policy, i.e. the pure form of life insurance, instead of one with a market-linked investment plan. Although there are various types of insurance + investment plans, it makes sense to buy a term plan to secure your family’s future and invest your hard-earned money into different financial instruments, such as fixed deposits, mutual funds, Systematic Investment Plans (SIPs), etc. that can offer higher returns over time.

8. Not buying the life insurance policy online:

Buying a life insurance policy online has many advantages. As we discussed, it is easier to do the comparison of different policies online. Moreover, insurance companies offer several discounts from time to time on the online purchase of a life insurance policy. In some cases, the insurance advisor might not disclose all the policy features, exemptions, or terms and conditions to you if there is a bias or commission at stake.

To Conclude:

Buying the right life insurance policy to secure your family’s financial needs in your absence is an important financial goal. Avoid these 8 possible mistakes when purchasing your life insurance policy to ensure the secured future of your loved ones. Make sure you carefully research and select the best life insurance policy by comparing different policies online and do not make a hasty decision. Thoroughly read the fine print of the policy document to make an informed decision. Also, check for various discounts that insurance companies offer on the online purchase of a life insurance policy. Furthermore, remember to renew your policy on time to get uninterrupted life insurance coverage and fulfil your financial responsibility to your loved ones.

This article first appeared on PersonalFN here