Buying a Life Insurance Plan? Avoid These Mistakes

The current unprecedented situation due to the pandemic is an eye-opener for all. It has helped us understand how uncertain our future is and highlighted the importance of planning for such uncertainties. Here is where you may want to consider taking a life insurance cover that takes care of your financial implications to a large extent. The proceeds from a life insurance policy can be utilised by your family for paying off debt, meeting big-ticket expenses like children’s education, and even assist your spouse in old age. Given its benefits, it is important that you purchase the right life insurance policy that can adequately meet your requirements. 

Here are a few mistakes that you should avoid when buying a life insurance policy: 

Insufficient Research: Often, you may rely on agents, friends, or family members for recommendations without doing any research of your own. This may lead you to purchase a policy that doesn't fit your requirements. Taking charge of your family's needs requires the same rigor as buying and comparing reviews for any high-value purchase like a house. Some important things to assess are the right amount of coverage, pricing, ease of interaction, a company's business record, and its claim settlement history. 

Not Considering Online Mode of Purchase: While opting to buy insurance online you can compare features, avail cheaper premiums, avoid being mis-sold, choose paperless onboarding creating a hassle-free buying journey. Buying an online life insurance policy is safe and easy.

Procrastinating: When you are young with limited liabilities and in the prime of your health, it is unlikely that one truly understands the value of a life insurance policy. Waiting for the right time may end up in financial hardship for your family. 

Ideally one must purchase a life insurance policy at the beginning of his/her career. Further, stay away from very long-term covers as paying premiums post-retirement becomes very difficult. Choose a term plan for the short or medium-term with the appropriate coverage. You may choose a plan that allows you to top up your cover overtime as per your needs.

Not Enough Coverage: The main goal of a life insurance policy is to ensure that the proceeds from the policy can support your family members. Thus, the policy must provide adequate coverage. Generally, as a thumb rule, the sum assured should ideally be 10 to 12 times your annual income. 

Sharing Inaccurate/False Information: People sometimes share inaccurate, false, or incomplete information while filling their life insurance application forms. This can negatively impede the life insurance claim, leaving the family financially vulnerable. 

Failing to Read Policy Documents Properly: Most insurance companies offer a 15-day free look-in period to review and understand the fine print of the chosen plan. It is essential to optimally utilise this period to read the terms and conditions offered by the insurer. Another critical factor to check is the policy exclusions that clearly define what is covered and not covered, giving you a chance to reconsider and clarify to make the claim settlement easy for the family. 

At every life stage, your life requirements may vary, but having a life insurance cover is a must. It is never too late to prepare for uncertainties. Do your research, choose an adequate coverage amount, provide all the right information, and read your policy documents carefully to ensure financial safety for your loved ones.

The author is Appointed Actuary, Aegon Life Insurance

DISCLAIMER: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.