Mistakes To Avoid When Buying A Life Insurance Policy

By Adhil Shetty | August 29, 2017

Life Insurance is one of the most essential financial instruments. The number of people opting for Life Insurance has gone up substantially in recent times thanks to rising awareness levels. There are however still a large majority of people either without Life Insurance or unhappy with their Life Insurance plan.

Not buying the right Life Insurance plan as per their needs or opting for a higher cover policy without needing it or opting for a wrong policy are common reasons for such disappointments. Therefore, if you are looking to buy a Life Insurance policy, avoid the common mistakes to ensure you seek the right policy as per your needs. We take a look at the common mistakes.

Identifying The Goal Behind Buying Life Insurance Term – Investment, Protection or Both?

One of the common mistakes which people make while buying an insurance policy is treating the Life Insurance as a protective as well as an investment vehicle. All the traditional plans like money-back and endowment have insurance as an element but they are not purely investment products because of the charges involved. Ideally, investment-linked insurance plans should not be the first life cover you buy. You can consider buying a Term Plan, which provides high coverage at low premium costs, thus saving you money that can be diverted to attractive investment options such as Mutual Funds.

Insurance Cover And Premium

Many people buy Life Insurance but do not consider the premium to cover ratio and lose tax benefits. The rules state that your premium should not exceed 10% of your Sum Assured to be eligible for Section 80C benefits. So make sure your insurer provides you with the right cover for you to avail 100% tax benefits.

Not Calculating Insurance Needs

Paying a very high premium may not necessarily get you the best coverage. Rather, you should prudently calculate your family’s long-term requirements such as children’s education costs, existing loan balances, surviving spouse’s money needs, etc. and then buy the appropriate life cover. You may find that in most cases, only term plans may be able to provide you with this coverage.

Choosing The Wrong Insurance Policy

Life insurance policies are available in multiple options. From ULIPs to endowment plans to term insurance plans, there is a Life Insurance policy to suit the financial needs of the vast majority of people. Choosing an insurance policy based on recommendations of an insurance agent or opting for the same policy as your friend or relative may not be in your best interests. Know your financial needs, check with a certified financial planner and then chose the appropriate life insurance plan for your need.

Not Knowing The CSR of The Insurer

CSR, or claim settlement ratio, shows what percentage of total claims in a year was settled by an insurer. A high CSR means that the insurer settles a high number of claims. The higher the CSR, the better for the customer. Some of the best insurers have a CSR of 95% or more today.

Asking Agents To Fill The Forms

Let your advisor fill the policy. One of the reasons why claims get rejected is because people let their agents fill the form and do not mention facts such as family’s medical history, which may impact the underwriter’s decision. Such discrepancies may complicate the claim your family will make in case of your death.

Not Comparing Multiple Policies Before Selection

With a rising number of life insurers in India and each insurer having multiple plans, opting for a Life Insurance without comparing the policy terms and conditions is a mistake. If you are short on time, make use of various insurance aggregators allowing you to check and compare insurance policies from multiple insurers on a single platform. You can also interact with current policyholders with the various insurers allowing you a detailed insight on customer service offered by the insurer.

Conclusion: Buying Life Insurance is one of the core financial obligations you have towards your family and loved ones. By avoiding these common mistakes, you can choose an optimum Life Insurance cover allowing you peace of mind and financial freedom for the future. You should also go through the complete policy details like the term of the plan, returns, charges, features etc.

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About Adhil Shetty

Adhil Shetty is the Founder and serves as the Chief Executive Officer of BankBazaar.com. Adhil has a Master’s degree in International Relations with a specialization in International Finance and Business from Columbia University in the City of New York, and a Bachelor’s degree in Engineering from the College of Engineering Guindy, Anna University. Adhil is an expert in Personal Finance (Car loan/Home loan and personal loan) and he majorly consults on investment and spends rationalization for the Indian loan borrowers. His guidance is number based with real time interest rate calculations and hence useful for consumer’s real time query.

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