In our 30s, we tend to spend a significant part of our income on lifestyle needs such as family vacations, children’s tuition fees and EMI payments. Amidst all this, we somehow place financial planning at the very end of our priority list, failing to realise its importance until it’s late. As bread earner of the family; however, you cannot take the matter of your family’s financial security lightly.
Instead, you need to be proactive and take steps to safeguard your loved ones against all eventualities as soon as possible, starting with an insurance policy. With an insurance policy, specifically, life insurance, you can achieve many objectives including financial security for your family and retirement savings for yourself. Therefore, you don’t want any slip-ups while selecting a financial product such as life insurance. To help, here are some insurance mistakes that you need to avoid at all costs.
Delaying Your Decision
Deferring your decision on buying life insurance is a crucial mistake that can reduce your chances of availing maximum policy benefits. The premium amount that you pay is directly proportional to your age. As your age advances, the risk in life aggravates, which in turn, increases the premium you must pay. Therefore, life insurance policy purchased at a younger age offers you enhanced coverage for a longer duration by paying the lowest possible premium. By starting early, you can also achieve your future financial goals with systematic premium payouts towards the life insurance policy.
Avoiding Research on Various Life Insurance Products
Before selecting a life cover, you must make yourself aware of the various life insurance products that are available in the market. For instance, a term plan provides you pure protection from death risk only. With this insurance plan, you can avail a significant amount of coverage for a low premium. However, there are no maturity benefits under term insurance.
Whereas, in ULIP plans, your investment is more likely to grow in value as part of the premium paid gets invested in market-linked financial instruments, while the remaining portion is used to provide life cover. ULIPs can help you in achieving long-term financial goals such as saving for your child’s higher education or wedding. Therefore, by knowing about the different life insurance offerings, you can make an informed decision about where to invest your money.
Overlooking the Claim Settlement Ratio
Claim settlement ratio or CSR is an important factor that can help you understand whether the insurance company is reliable regarding settling their claims. The rule of thumb says that you should always go with an insurer that has a healthy claim settlement ratio. You will be at peace, knowing that your loved ones will receive the claim amount without any hassles after your death.
Claim settlement ratio also helps in analysing the overall performance of the insurance company. That said, most insurers offer a free-look period of 15 to 30 days after purchasing a life insurance plan. You should utilise this period to go through the policy terms thoroughly, and if you don’t find the plan suitable to your risk appetite or expectations, you can always return the same.
Being Unsure About the Premium Paying Term
Every insurance plan requires the insured to pay a premium amount to the insurers on a regular basis. Also, different policies have different premium paying term, as mentioned in the policy schedule. Therefore, you should be aware of the premium paying term (PPT) for your policy as it will help you calculate how much you will be paying for the insurance plan over the years and the expected return on that policy. Knowing about the premium payment plan can also help you assess your long-term budget requirements.
Failure to Calculate the Appropriate Insurance Cover
The purpose of purchasing life insurance is defeated if the policy doesn’t fulfil your family’s actual requirements when needed. Therefore, blindly buying any life cover would be a terrible mistake. Imagine a scenario where your family makes an insurance claim after your death, but the received amount is inadequate in fulfilling their financial requirements.
Therefore, to avoid any such situation, you must first calculate an appropriate insurance cover by taking financial liabilities such as your children’s education and wedding cost, monthly household expenses and your parents’ needs. You can also effectively calculate your requirements through an online insurance calculator, which is readily available across prominent insurance websites.
Buying a life insurance policy is perhaps the most crucial financial decision that you make in your lifetime. It is important; therefore, to avoid any goof-ups and purchase a policy that can effectively secure your loved ones in your absence. You must not purchase life insurance merely to save income tax as this would only serve your short run goal while proving to be inadequate in the long run.