Life insurance coverage is one of the main components of any individual’s financial plan. However there is lot of misunderstanding about life insurance, mainly anticipated to the way life insurance services happen to be sold over time in India. We have mentioned some common mistakes insurance buyers should avoid when buying insurance policies. Quality
you ) Underestimating insurance necessity: Many life insurance potential buyers choose their insurance addresses or sum assured, centered on the plans their agents want to trade and how much premium they can afford. This a wrong approach. Your insurance requirement is a function of your financial situation, and has nothing do with what products are available. Many insurance customers use thumb rules like 10 times twelve-monthly income for cover. Some financial advisers say that an appliance cover of 10 times your twelve-monthly income is satisfactory since it gives your family 10 years worth of income, when you are gone. But this is not always correct. Presume, you have 20 season mortgage or home loan. How will your loved ones pay the EMIs after twelve years, when almost all of the money is still excellent? Suppose you have very young children. Your family will run out of income, whenever your children need it the most, at the. g. for their advanced schooling. Insurance buyers need to consider several factors in deciding how much insurance policy is enough for them.
? Repayment of the complete outstanding personal debt (e. g. home loan, car loans etc. ) of the policy holder
? Following debt repayment, the cover or sum assured should have surplus funds to generate enough monthly income to cover all the bills of the household of the policy holder, factoring in pumpiing
? Following debt repayment and creating monthly income, the amount assured should also be satisfactory to meet future obligations of the consumer, like children’s education, marital life etc.
2. Choosing the cheapest policy: Many insurance buyers like to buy policies that are less costly. This is another serious mistake. A cheap plan is no good, if the company for some reason or another are unable to fulfil the claim in the event of an untimely death. Even if the insurer fulfils the claim, if it uses a very long time to fulfil what he promises it is certainly not a desirable situation for family of the covered to be in. You should look at metrics like Claims Settlement Rate and Duration wise arrangement of death claims of numerous life insurance companies, to select a provider, that will honour its responsibility in fulfilling your promise in a timely manner, should this unfortunate situation arise. Data on these metrics for all your insurance companies in India comes in the IRDA gross annual report (on the IRDA website). You should also check state settlement reviews online and only then choose a company that has a good track record of settling claims.
3. Dealing with life insurance as a great investment and buying the wrong plan: The normal misconception about life insurance is the fact, it is also as a good investment or retirement living planning solution. This false impression is largely due to some insurance agents who like to sell expensive policies to earn high commissions. If you compare returns from life insurance to other investment options, it simply will not make sense as an investment. A high level00 young investor with quite a long time distance, equity is the best wealth creation instrument. Above a 2 decade time horizon, investment in collateral funds through SIP will bring about a corpus that is at least 3 or 4 times the maturity amount of life insurance plan with a 20 12 months term, with the same investment. Life insurance coverage should always been seen as safety for your family, in the event of an untimely death. Investment could be a completely separate consideration. Despite the fact that insurance companies sell Device Linked Insurance Plans (ULIPs) as attractive investment products, for your own analysis you should separate the component and investment element and pay careful attention to what percentage of your premium actually gets allotted to investments. In the early years of your ULIP policy, only a tiny amount goes to buying devices.
A good financial adviser will usually advise you to buy term insurance plan. A term plan is the purest form of insurance and is an easy protection insurance plan. The premium of term insurance plans is a lot less than other types of insurance plans, and it leaves the people with a much larger investible surplus that they can invest in investment products like mutual funds that give much higher earnings over the years, compared to diathesis or money-back plans. In the event that you are a term insurance plan holder, under some specific situations, you may opt for other types of insurance (e. g. ULIP, endowment or money-back plans), in addition to your term policy, for your unique financial needs.