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5 Catastrophic Mistakes That People Make While Buying Life Insurance

08/06/2016 8:34 AM IST | Updated 15/07/2016 8:27 AM IST
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You have finally decided to buy life insurance, as you are now convinced about its importance in the long run. Good! However, do you know it is quite possible that you won't be able to enjoy its benefits? Confused, right? Let me explain why -- if you buy the wrong insurance plan, it might not be able to help you when you need it the most, laying to waste the plan and all the premium money you've paid over the years. The trick is to buy the right plan.

Enumerated below are the common mistakes that people make while buying life insurance. Being mindful of these will help you make an informed buying decision and save your family a lot of grief.

1. Penny wise, pound foolish

This is the most common and biggest blunder people make while buying life insurance. As the benefits of life insurance are not immediate, like that of a car or health insurance, people tend to de-prioritize it. The buying decision is based on one and only one criterion -- the premium: the lower it is the better!

A sum that looks generous today may be a pittance after accounting for soaring inflation over the years.

But here's what: lower premium translates into less sum assured, which might be extremely insufficient 10 or 20 years down the line when your family might actually need the money. After all, a sum that looks generous today may be a pittance after accounting for soaring inflation over the years. Again, buyers have a tendency to compromise on the terms of the plan to reduce the cost. So, change your mindset. Instead of price, benefits and utility should be the main criteria for buying a life insurance plan even if it means paying a little more.

2. A stitch in time saves nine

Don't wait to buy life insurance until you see grey hair in the mirror. You get cheaper and better deals on life insurance when you are young. Hence, you can get a higher sum assured for a long policy term at low cost. However, if you decide to buy life insurance at a later stage (which you can), not only do you have to undergo quite a few checkups, there is a chance of the premium increasing on diagnosis of any chronic ailments. So, why take a chance? People usually leave life insurance as the last insurance to buy after car, health, child etc. Is life so cheap?

3. A little learning is a dangerous thing

So, a friend told you over lunch about his life insurance purchase and you quickly took his agent's number to jump on the bandwagon. This is pretty common and, trust me, the biggest mistake one can make. Don't get influenced as every person's requirement is different. What works for them may be useless for you. Again, there are many companies and many offers to choose from. If you are blindly following an agent because your friend's uncle bought from him, you're being foolish.

Did you know that life insurance policies sold online are way cheaper, with a bigger sum assured?

Did you know that life insurance policies sold online are way cheaper, with a bigger sum assured? The reason is not any cheap trick but because companies save on administrative costs of selling and marketing. Logical, isn't it? Yes, go for logic. Do your own research, compare plans, and then choose one that suits your best interest so as to ensure the financial security of your family in your absence

4. A Drop in the ocean

Nothing can be worse than not assessing your future financial needs properly. Just to save some money now, don't under-assess your family's liabilities and financial responsibilities in the future. A growing family and years ahead always translate into a spike in expenditure. Both costs and inflation are ever rising. A simple formula to assess your future needs is to buy 10-15 times of what you are earning today. There are many online calculators to help you get the right amount you might need in future based on your age, family needs, spending habits, etc. Alternatively, you can consult a financial expert to help you reach the right decision.

5. The moment of truth

Don't hide anything -- consciously or unconsciously -- from the insurance company. If you lie today regarding your health, smoking or drinking habits, it might lead to rejection of the claim in the future on grounds of false statement.

If you lie today regarding your health, smoking or drinking habits, it might lead to rejection of the claim in the future.

Another mistake that people often make is to let the insurance agent fill the insurance papers on their behalf and they just sign on the dotted lines. In such a scenario there are higher chances of missing out on some vital information or giving incorrect data. It is strongly recommended that you take time to read the details and fill the form yourself. This is why I suggest that you buy life insurance online, wherein it is only you who fills the form and you make complete disclosures with respect to the questions asked. That way there is no chance of claim rejection on account of non-disclosure.

Avoid these common mistakes and make an informed buying decision because after all it is your life and family at stake here.

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