Mistakes to avoid when purchasing a life insurance policy

Mistakes to avoid when purchasing a life insurance policy

Life insurance is a great way to secure your family's life after you're gone. With a life insurance policy, you pay annual premiums, and if you die in the policy term, your family will get the sum assured so that they can take care of their financial expenses. If you are getting married or if you have a child, it is usually a good time to buy a life insurance policy to ensure that your loved ones will be taken care of in case you die early.

No one wants to plan for their death, but it is usually a good idea to ensure your family's financial safety. If you have taken a loan for a home or something else, and you feel that your family will not be able to pay it after you're gone, you should buy a life insurance policy to ensure that they can pay for that expense even after your death. But when purchasing a life insurance policy, there are several factors you should consider and several mistakes you should avoid.

Related: 8 health insurance jargons explained

Factors to consider before buying a life insurance policy

There are several factors to consider:-

  1. Age factors- You need to consider your age and your dependant’s age when buying a life insurance policy. The policy should protect the dependant for their lifetime. 
  2. Current lifestyle assessment- If you want your family to maintain the lifestyle even if you are gone, you should purchase a policy accordingly. Therefore, the amount sum assured needs to ensure that your family’s lifestyle will not be affected. 
  3. Income vs Premium- You should check that your income is able to easily afford the premium. You should not be overburdened. 
  4. Analyze the outstanding liabilities- Debts should be taken care of by the life insurance policy. If you have a home loan outstanding, the policy should take care of the home loan in case of your death.
  5. Choose the appropriate riders- Riders like accidental death benefits, critical illness benefits, and disability riders should be considered and added as per the requirements. 
  6. Claim settlement ratio- It is important that the claim settlement ratio of the insurer is good. Otherwise, your claim might be rejected without any appropriate reason

Apart from these factors, there are some mistakes you should avoid. 

Related: Difference between insurance agent and insurance broker

Mistakes to avoid when purchasing a life insurance policy

The mistakes to avoid are:-

  1. Inadequate coverage- The sum assured should be at least 8 to 10 times your annual salary. If you want to calculate the sum assured required, you can use the Human Life Value calculator to get the value.
  2. Policy terms not adequate- Don’t fall for the cheaper premiums of lower terms. Ideally, you should purchase the policy till at least your retirement age. This will ensure that you save money for your family consistently. 
  3. Not purchasing life insurance early- If you delay the life insurance, your premium will continue to increase. Therefore, if you have the money in your younger years, you should buy life insurance immediately. 
  4. Declaring wrong medical information- If you have a health condition and you die because of that condition, if you declared that condition, your life insurance claim settlement is much higher. Else, your claim might be rejected. 
  5. Not buying the policy online- Online life insurance is cheaper than offline life insurance. Thus, you can afford a higher sum assured. 
  6. Considering the insurance as an investment- If you consider the insurance as an investment, you are wrong because it is just security. Security in life is important as well, and you should focus on security when buying insurance rather that think of it as an investment.

Related: Group health insurance Vs Individual health insurance

5 Life Insurance Policy Mistakes