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5 mistakes you should avoid while buying life insurance

If you are looking at a pure protection product to safeguard your financial responsibilities in your absence, you should buy term insurance plans.

October 27, 2017 / 12:46 PM IST

Having adequate life insurance cover in your portfolio is a must. Life insurance is bought for many reasons which may not only include protection purpose but also to meet various financial goals of your life like child marriage, wedding planning and so on. Therefore, it becomes necessary to understand the main motive behind every L-I policy.

Here are few mistakes one should avoid while buying a life insurance for themselves.

Not knowing the purpose

Many of us buy insurance only to save ignoring the fact that life insurance is mainly bought for protection purpose. Life insurance policy helps in securing your dependents and your future liabilities if something happens to you. Providing you tax benefit is not a primary objective of any insurance policy. It is an additional benefit which every individual enjoys once they buy a life cover to protect their family.

“The main purpose of life insurance is to provide your dependents financial help in the time when you might not be around. First, ask yourself why you need one, the aim should be clear. Once the purpose of buying life insurance is clear, you can go ahead and select the kind of life insurance you want to buy. There are several types of policies in the market, each catering to different needs of the customers,” says by Santosh Agarwal- Head of Life Insurance, Policybazaar.com

Not calculating the insurance cover

Most of the time people get into the trap of buying life insurance policy which provides them highest sum assured without calculating whether they really need that much cover at that point in time or not. It is important to calculate your overall annual expenses.

“Take it as a method to protect the life of your loved ones when you are gone. Look into the future and calculate your household expenses, children’s education, and their wedding cost, your parents’ needs and other financial liabilities etc. You’ll need to consider you dependents requirements needed to maintain their lifestyle in your absence, plus any liabilities and then decide on the amount of coverage,” added Agarwal.

Therefore, you should take a cover accordingly, otherwise you may end up paying a heavy premium.

 Not knowing the policy you need

Do you need a ULIP plan which can cater your child’s education goal as well as provide protection? Or, do you need a term insurance to protect your long term liabilities? It becomes very important to know which policy you need so as to cover your financial liabilities well.

“If you are looking at pure protection product to safeguard your financial responsibilities in your absence then you should look at Term Insurance Plans. In case, it is for Children education, marriage etc. Where you require growth oriented products then ULIPs are a better option,” says Agarwal.

ULIP is a combination of insurance and investment g basically giving dual benefit of growth and protection. Here policyholder can pay a premium monthly or annually. A small amount of the premium goes to secure life insurance and rest of the money is invested in market instruments. And in case, the purpose is only to get guaranteed benefits then one should opt for endowment plans. Endowment plans invest in low risk instruments and offer guaranteed maturity benefits but the returns offer by these plans are quite lower as compared to ULIPs.

Not knowing the premium paying term

For every insurance plan you have to pay a certain amount of premium. Every plan has different-different premium paying terms (PPT’s) as per the policy. Knowing the PPT will let you know the exact amount you are going to pay for that particular insurance cover. Also, you can calculate returns which you may get on your survival if it’s a non-term plan.

Not knowing the claim settlement ratio

One of the important factors to choose the insurer is knowing the company’s claim settlement ratio. You should know whether the company is reliable and settle one’s insurance claim on time or not? “Claim settlement ratio is the ratio of approved claims to the total number of claims filed. Therefore if you know the claim settlement ratio, you can make a better decision on selecting the insurer and the kind of life insurance policy,” Agarwal added.

Navneet Dubey
first published: Jul 10, 2017 11:45 am

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