Mistakes To Avoid While Buying Life Insurance

‘If you fail to plan, you are planning to fail!’ - Benjamin Franklin.    

This quote very well depicts the importance of life insurance. Although no one likes to leave their loved ones behind, it is wise to be prepared for the worst. Life insurance helps financially safeguard your loved ones after you are gone.    

However, choosing life insurance from so many available options takes a lot of time and effort. But picking the wrong life insurance can make all your efforts futile. In this blog, we will discuss some of the common mistakes you should avoid while buying life insurance.   

Mistakes To Avoid While Buying Life Insurance   

1️. Not Assessing Your Needs  

The biggest mistake is buying life insurance without considering your financial situation and your dependents’ needs. Calculate your outstanding debts, future expenses, and the financial needs of your family before choosing insurance. This will help you determine the right amount of coverage.   

Suppose you have a family of four including you, your wife, and 2 children, each person needs around 2 lakhs for their expenses. Then you would need insurance with a yearly coverage of at least Rs 6 lakhs to ensure that your family’s needs are met. If you have any additional expenses like a home loan, car loan, etc. then you will need to opt for larger coverage.

2️. Choosing Lower Premium And Underestimating Coverage   

The lesser the coverage amount, the lower the premium will be. A lower premium might seem tempting, but inadequate coverage might leave your loved ones struggling financially when they need it most. The purpose of life insurance is to provide a safety net for your family. so, choosing the right coverage should be the priority.

3️. Not Using Riders  

Riders are optional add-ons that provide additional benefits like critical illness, accidental death, and disability, beyond the basic death benefit offered by life insurance policy. You can avail the benefit of the desired rider by paying a little extra premium. With riders, you can personalize your life insurance to suit your circumstances and thus ensure your loved ones will always be protected.   

Let’s assume you had an unfortunate accident and now you won’t be able to go to work, luckily you had chosen a Disability Income Rider along with your base insurance benefits, then you will receive a certain amount every month until the age of retirement (60 years) or until you are fit to work again. Thus, you can be assured that your family’s needs are met .

4️. Not being honest    

When applying for life insurance, you should disclose all information truthfully and accurately.  If the insurance company gets to know you have provided false information it might result in your claims getting rejected. So be honest and transparent about your health, lifestyle, and medical history when applying for life insurance, and ensure your loved ones face no issues during the claim settlement process.

5️. Waiting Too Long to Buy   

 A life insurance premium is based on certain factors like age, health, existing diseases, etc. The younger and healthier you are, the lower will be your premium. The longer you wait to buy life insurance, the risk of health issues increases, which can lead to higher premiums. Hence if you want to buy insurance at lower rates consider buying now rather than later.     

A 45-year-old purchasing life insurance will have to pay significantly higher premiums than a 25-year-old due to his age and potentially higher health risks associated with aging.

 

6️. Choosing the Wrong Policy Term   

This is one of the most common mistakes that people make when opting for a term plan. Generally, insurance with shorter terms are cheaper and may lure you into making a wrong decision. On the other hand, if you choose insurance with an excessive long term, you might be paying for coverage you no longer need. Hence evaluate your and your financial goals and choose a policy term that aligns with your objectives before buying a policy.   

Let’s assume you purchased 20 years of term life insurance at the age of 25. Now when you are 45, you will have to purchase a new life insurance policy. The premium would be quite high at 45 as compared to the premium paid for the insurance you purchased at 25 due to health and aging issues. This might mess up your financial plans completely.

7️. Not Considering Inflation   

Inflation reduces the purchasing power of money; this means the coverage you are choosing right now may not be sufficient enough to meet the needs of your dependents in the future when prices rise. Hence remember to choose a coverage amount after considering future inflation rates to ensure your absence doesn’t impact their standard of living.   

Let’s consider the first example again, you have a family of 4 and each of them needs 2 lakhs annually for personal expenses, and you have taken a 20-year term life insurance. But the problem 20 years from now is that 20 years later the prices of commodities won’t be the same as now and will rather rise and so will your family’s expenses. So, it's better to choose a higher coverage amount considering the inflation.

8️. Not Comparing Different Insurance Policies    

This is yet another common mistake, comparing various policies can help you better understand the features and benefits offered. Don’t buy the first policy you come across without comparing prices and what others offer. Get quotes from different insurance companies to compare coverage options and premiums and ensure you are getting the best value for your money. Remember, a little planning today can save your family from an unexpected financial crisis. 

Key Takeaways

1. With life insurance, you can ensure the financial stability of your family even in your absence. 
2.  Consider various factors like lifestyle, debt, future expenses, inflation, etc. before making a purchase. 
3. Riders are add-ons that provide additional benefits for critical illnesses such as cancer, heart attack, accidental death, etc. in exchange for some extra premium
4. The earlier you buy, the lower will be the premium so it’s wise to buy while you are still young and healthy, but don’t just look for a lower premium. Also consider the benefits offered, term of insurance coverage, etc.  
5.  Make sure you buy insurance after comparing insurance policies offered by different companies and get the best value.