4 Life Insurance Mistakes To Avoid In India? Term Life Insurance

Whenever we start with our career, whether we start it from a job or a small business. So as soon as we have started saving some money, we think to invest it so that it will grow. In such a situation, most people often have an option like life insurance. Because everyone around you will suggest you buying a term life insurance.

Purchasing life insurance that comes with two benefits acting as insurance and also along with your money will be doubled in this time. But buying a term life insurance from an investment point of view is considered as a mistake. So what are the 4 life insurance mistakes to avoid in India? how to choose the best life insurance?

4 Life Insurance Mistakes To Avoid

If you are planning to buy a life insurance or term life insurance then you should definitely check out this to avoid mistakes while buying life insurance in India

#1 Purpose Of Buying Life Insurance

Starting with the 1st life insurance mistake to avoid is that, many people say that they don’t need insurance. Somewhere maybe their logic can be correct but it depends on how your condition is.

And many times, people don’t understand the whole logic. For example, if anyone is a single earning member then he can say, that since he has no dependents so he doesn’t need insurance.

So if he wants to stay single his whole life then his logic is correct. And on the other side if there is a husband and wife and both are earning then they also can say that because we are financially independent so we also don’t need insurance.

But we have to understand that in the case of a single also; if he marries in the future then he will have dependents, the wife can be also dependent, and in the future your children too. Husband and wife too, who are earning in today’s date will have dependents in the future and liabilities will also be made. As a lot of people buy a home on loan, it becomes a huge liability.

But if in the future if any of the working partners lose their jobs then it will become difficult for the family to meet their liabilities and expenses in the future which would lead to financial burden or stress. This is where an insurance policy is helpful in order to manage our future liabilities and finances.

#2 Insurance As Investment

So let’s talk about the 2nd life insurance mistake to avoid are that, which is also a huge mistake. Many people say that insurance is a good investment. Because you are getting insurance and your money will get doubled in so and so time. In fact, if you pay attention, agents will never tell you the annual returns on the insurance.

You have to calculate it on your own. They will tell you that your money will be doubled in 12 years, 13 years, 14 years. But if money is doubling in 12-14 years, you will back calculate it to see. how many actual returns are you getting?

So if you calculate then your annual return will be around 5.2% to 5.5%. This much is our inflation also gets increased. So how much are our actual returns? Zero, so what is its better way? The better way is that you separate the insurance and investment.

So you should buy insurance separately to protect your family from any unfortunate event and mishappening and this is what we call term insurance. When you buy insurance separately, which is also called vanilla insurance. You will only get death benefit from it, you will not get any maturity benefit from it.

#3 Undercoverage And Overcoverage

So 3rd life insurance mistakes to avoid are Undercoverage and Overcoverage. Many times we take a little less insurance and many times we take a little more insurance.

What Is The Meaning Of Under Coverage?

Under coverage means that the liabilities you calculated on today’s date, you have been calculated according to your 1 or 2 loans that are running. And you have calculated the future expenses according to it.

On today’s date maybe your dependents are only your wife and 1 child. But in the future maybe you take another home loan. You may have another child in the future so you take insurance according to your liabilities and expenses in today’s date, if in the future, let’s say your liabilities increase then you can increase your insurance coverage.

What Is The Meaning of Over Coverage?

So over coverage simply means that you don’t have to take term insurance for all the members we have. We have to take term insurance only for earning members. It’s a simple thing, if the earnings go in any form, then it is replaced by insurance.

And what’s the optimum insurance we have to take? The optimum amount of insurance that you have to take should be 15 to 20 times your annual salary. But it actually depends on how much are your liabilities, your lifestyle, and expenses

#4 Cheap Insurance Is Not Always The Best

So 4th life insurance mistake to avoid is believing the cheapest is always the best one and this is the mistake that we make, we believe that the cheapest insurance is the best. Somewhere logic is correct, that we get the max. sum assured in the least premium. So it’s understandable.

Suppose you buy a cheap life insurance policy and 10 years later in any unfortunate you want to claim that life insurance policy but your claim gets rejected all the premiums that you paid get wasted. When you needed money the most that time you didn’t get. Or in the worst case what if that company didn’t even exist in the future?

Insurance should always be bought from a company that is loyal and promising with their customer and also has a good claim settlement ratio, let’s say 10-20 years down the line whenever you are in need the insurance company should be there to help you.

So these were the 4 Life Insurance Mistakes To Avoid when you are buying a life insurance plan.