One of the best decisions that you can make in your lifetime is to purchase life insurance that will ensure financial security for your loved ones when you are not around for them.
Other than the obvious benefit of protecting your family financially, investing in life insurance could also mean achieving some life goals that require significant financial outlay. Perhaps higher education abroad for your children, or saving up for their marriage, buying a house, going on a world tour or simply saving up for your sunset years.
Mistakes to Steer Clear of When Selecting, Purchasing and Investing in Life Insurance
Here are the mistakes you can avoid while choosing and buying a life insurance plan.
Mistake: Ignoring your objectives
Solution: Be Clear of Your Objectives When Purchasing Your Life Insurance Policy:
The most important aspect of a life insurance policy which is financial security for your loved ones, when the breadwinner of the family meets an untimely death.
It is absolutely essential that you are clear about why you need life insurance in the first place. That will give you the much needed direction in the type of policy you should be investing in.
Mistake: Not being certain about the insurance cover that you need
Solution: Remember to Calculate the Insurance Cover That You Need
While you may be clear on the importance of investing in life insurance, you should not go about the process of purchase, blindly. You need to absolutely sure that the sum assured that you have opted for will be able to meet the needs of your family in the event of your death.
To get your calculations right, take into account your monthly household expenses, children’s education and wedding cost, your parents’ needs and any other short or long term financial liabilities that you may have. Remember to factor in inflation too. Alternatively, you can use an online life insurance calculator which is available on most insurance company websites to get an estimate of the coverage that you may need.
Mistake: Purchase a policy based on hearsay
Solution: Research and Compare Different Life Insurance Products
There are several types of life insurance products, for example, term life insurance, whole life insurance, etc. available today.
For those opting for term life insurance, you should be aware of the fact that you get substantial life cover against a certain premium amount, depending on your age and other factors.
Unit-linked plans on the other hand offer life cover along with an opportunity to invest. A part of the premium paid goes towards the insurance aspect and the remaining premium is invested in the market. This allows the policyholder to compound on the investment made and earn a return on it.
When you decide to buy life insurance, weigh in your needs and compare them against the plans that satisfy them best.
Mistake: Not knowing the premium paying term
Solution: Be Aware of the Premium Paying Term
The premium payment term also varies depending on the type of life insurance policy you opt for and the service provider. The policy schedule will mention the same.
By going through the PPT or the premium paying term you know exactly how long you will need to pay the premium for. Basis that, you can calculate the return on the policy, if applicable. This also helps in the calculation of any long-term budget requirements.
Make sure that you know what you have to pay and how long you have to pay it for. If it is beyond your affordability quotient, then its best to keep shopping.
Mistake: Having no idea about the claim settlement ratio
Solution: Check the Claim Settlement Ratio
To make sure that the insurance company you are going to do business with is reliable, you need to check their claim settlement ratio. It helps you to understand how well the company is performing too.
A healthy ratio will ensure peace of mind as you are assured that any claim made by your beneficiaries in your absence will be honored.
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