Jul 07, 2014,19.28 IST
Mistakes to avoid while buying life insurance
The well-being of the family is the first thought that crosses the mind, whenever someone is planning for the future. From ensuring the financial security of your spouse to your children’s education and marriage, your monetary needs keep changing as the family grows. As a result, you must not undermine the importance of a robust financial plan. This is where life insurance comes in. A life insurance policy not only provides security to your family should anything untoward happen to you, it can also helps meet your financial needs during your lifetime. Given how crucial insurance is, you must equip yourself with all the right information before buying a policy.
We tell you some common mistakes to avoid while buying life insurance:
Taking insurance lightly: Many a time, given a host of other financial products available in the market, people do not even consider buying life insurance. Then there are also people who would have happily insured their property and vehicle, but not their own lives.
Call it ignorance or lack of proper guidance, not buying life insurance can have serious repercussions. Let us see how: The untimely death of one of the earning members of a family or, still worse, that of the sole breadwinner, can financially unsettle the rest of the family. In order to avoid such a situation, one must invest in a life insurance policy at the right time and of the right amount.
It is essential that people approach insurance with adequate seriousness rather than dismissing it as ‘just another financial product’.
Not buying insurance at the right age: Different life stages present different financial requirements. Buying insurance at the right age (or life stage) can help you meet these requirements comfortably. For example: If you wish to build a corpus for children’s higher education, it makes sense to buy an insurance policy when your child is very young.
Focus more on investment than insurance: If you don’t evaluate your financial needs properly, you may end up buying a policy that does not align with your objectives. People often buy a wrong insurance policy as they look at insurance from investment-tinted glasses.
The next time you set out to buy an insurance policy, always put insurance first and investment later.
Insurance is just a tax-saving instrument: This is perhaps one of the most common mistakes that people commit. In a bid to save taxes. They buy a number of policies that may or may not meet their financial objectives. While their insurance portfolio looks full, it does not necessarily add value to their financial plan.
So don’t fall prey to misconceptions about insurance being a tax-saving tool. Tax saving is just one of the benefits that comes along with insurance, whose main aim is financial security of your family.
Staying underinsured/Not reviewing your insurance needs: As a youngster, you may start out with one or two policies in your insurance portfolio. However, as time passes your family expands and lifestyle changes. As a result, you must review your insurance requirements from time to time and buy policies which meet your requirement accordingly. Not doing so will put you at the risk of being underinsured.
The worst part about being underinsured is that you always realize it late in life and when you do, there’s nothing much that can be done.
Not looking at insurance as a risk-management tool: There are times when people, out of confusion or ignorance, end up buying a life insurance policy that does not benefit them greatly. In such cases, even if something untoward happens to the policyholder, the insurance amount may not be able to financially secure the family. This is because people don’t view insurance as a risk-management tool. It is only when you do so that you can buy the right life insurance policy that assures you of your family’s financial security in your absence.
Also, know the important questions to ask while choosing a Life Insurance Policy – Click Here to know more.
Principal Financial Planner
Optima Money Managers