Checkout Top Life Insurance Mistakes that Even Smart People do Make most times.
Therefore, for anyone with financially dependent people, it is very important to purchase life insurance.
You might be financially literate, but chances are you are always making bad decisions. From budgeting mistakes and impulse buying to inadequate contingency planning and more, no one is immune to financial missteps.
It’s okay to make mistakes. A process of self-discovery and learning is often the best way to learn the financial management that’s best for you.
However, life insurance is an instrument that leaves little room for error, as the weight of it is often felt by your dependents. As a risk management tool, life insurance seeks to protect the financial interests of your loved ones while you are away and therefore it is absolutely essential to avoid any mistakes, big or small.
So what are common mistakes and how do you avoid them to make a sure-fire purchase? We’ll take a look:
Don’t buy term insurance
People put more emphasis on multiplying their money and often end up buying life insurance solutions to build wealth and invest. They avoid buying a term plan with excuses like insurance products linked to existing investments offer life cover or they have created enough corpus through other instruments.
What most people don’t realize, however, is that the fundamental goal of a term plan is to facilitate your family’s economic continuity without disrupting their financial stability. Your investments are often linked to certain objectives such as the education of the child, retirement, etc. You rarely create a corpus with the objective of economic continuity for your family. So if you have dependents, a term plan is not optional.
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Not an all-in-one solution:
Life insurance is a long-term solution, in which the policyholder rarely sees its tangible benefits as it is purchased for your dependents. This lack of immediate gratification leads people to seek “more” when purchasing life insurance. A common mistake people make is tying multiple goals into one solution, which leads to inadequate financial provisioning. It is essential to remember that life insurance protects the essential financial needs associated with the stages of life. So, resist the temptation to treat a single purchase as an all-in-one solution, as this can negatively affect your quality of life in the future.
Lack of full disclosure
Making incomplete disclosures might be the dumbest thing, but the biggest mistake smart people make. They tend to believe that they know what should and should not be disclosed when purchasing a life insurance policy. An essential part of the buying process is a thorough underwriting (financial and medical) to assess the risk profile and the needs of the individual. In the quest to prevent an increase in the premium, people do not make full disclosures. Such errors can result in the denial of claims by the insurer, which completely defeats the purpose of the purchase.
The biggest mistake of all is not keeping your dependents informed about your financial decisions. The main goal of purchasing life insurance cannot be achieved if your dependents are not aware of the details of your policy.
Review coverage regularly
Considering that life insurance is a long term solution, people often believe that once purchased, your goal has been achieved. However, as you progress through the stages of your life, the financial constraints in your life change. It is therefore essential to review your life coverage at least once a year.
One of the biggest mistakes smart people make is making comparisons between insurance and other financial products. For example, a fixed deposit is often compared to a guaranteed insurance plan. However, FDs and guaranteed plans serve a different purpose – one is a savings product and the other offers a wealth accumulation solution. Likewise, an Ulip is often compared to a SIP. Not only are these two not comparable, they serve different purposes and have their pros and cons.
Every financial decision has a purpose, and in the case of life insurance, the goal is simple: to secure your family’s dreams and aspirations. To avoid silly mistakes, ask yourself a question: How can I facilitate my family’s financial continuity without hassle? When you answer that question, everything else falls into place.
(By Anup Seth, Director of Distribution, Edelweiss Tokio Life Insurance)
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