What Mistakes Should You Avoid When Buying Life Insurance?

Buying a life cover, be it a term insurance plan, a ULIP, or any other type of policy, is an important and long-term financial decision that one makes. Once you buy a policy, it is usually to be maintained by you for at least the next decade or so.

When such is the case, buying a life insurance policy recklessly is not recommended. It is essential that you go through the process carefully, so as to avoid having any regrets later.

If you are a first-time policy buyer, know that the process of buying a life insurance policy online as well as offline is much simpler than it once might have been. However, there are a few common mistakes that most buyers are prone to make.

Here is a look at some of the common mistakes you should avoid when buying life insurance.

  • Not reviewing your goals

Do not buy life insurance simply because you have assumed or heard that it is an integral part of your overall financial security. While it may be an important aspect to be included in your wider financial portfolio, it is also essential to not buy life insurance without first understanding whether it aligns with your goals.

Reviewing your goals may help you get a better idea of what policies may suit you more. For example, if you are looking for a plan that helps you create savings while also offering you a life cover, you may opt for an endowment plan. On the other hand, if you are keen on having a simple, low-cost plan, level term insurance plans may be right for you.

Hence, understand and review your long-term and short-term goals before buying any financial products, especially life insurance. It may help you make better choices.

  • Not knowing policy details

Avoid buying a life insurance policy blindly. The features and details of one policy may differ from another. Before buying a policy, it is ideal to understand all there is to know about it. If you have any doubts or questions, you may consult an insurance provider representative or your insurance agent.

Most policies also come with a free-look period. This is a period that starts after you buy a policy, to allow you to read through the policy documents and return it if it does not suit your requirements. The free look period for plans purchased online is usually 30 days, whereas, for plans purchased offline, it may be 15 days. To avoid having to return a policy later, which may be a tedious process, it is best to go through policy details before buying.

  • Giving incomplete or inaccurate information

When buying a policy, you are required to provide some personal details. These details are an important part of the policy purchase process, and some of these may play a role in determining the premium amount you are required to pay.

If the insurer discovers that the details provided by the policyholder are either incomplete or inaccurate, it may lead to any claims in the future being rejected. To avoid such problems in the future, it is essential to provide proper and complete information when buying insurance.

  • Not informing your family

Your family members, especially your spouse, parents, and children, should be well aware of your insurance policies and their details. This is especially important if one of them is named a nominee of your policy.

Your family not knowing about your policy may lead to your policy going unused. Thus, it is necessary for you to communicate clearly the details of your life insurance policy with your family. Ensure that they have access to all necessary documents and details when they may require them in your absence.

  • Buying too little or too much coverage

It is recommended that the ideal policy sum assured be at least 10x your annual income. This allows you to create a financial safety net for your family that can sustain them for a considerable time period, till they are able to meet their needs without your support.

A common life insurance mistake many people make is opting for a sum assured that is either too high or too low. If you do not have an adequate sum assured, your life insurance plan may not prove as helpful to your loved ones as you would want it to be. On the other hand, if your sum assured is too high, it may end up becoming a financial burden to you.

Hence, before you buy a policy, you can use a life insurance calculator to get estimates of how much sum assured you can get for the premium you are able to pay.

  • Not checking the claim settlement ratio

The claim settlement ratio is a value that reflects how successful the insurer has been at settling all the claims made by consumers. The higher the claim settlement ratio, the better the chances of your claims being successfully settled. Hence, check your insurance provider’s claim settlement ratio before buying a plan, and opt for an insurer with a high claim settlement ratio.

These are some of the common mistakes made when buying life insurance that you ought to avoid. Also, when you are in the market for a life cover, don’t forget to shortlist the available options and compare the policies. Online life insurance calculators are a helpful tool that you may use to get a better idea of how much you would have to pay for your desired sum assured.