Top Mistakes to Avoid While Buying a Life Insurance Policy

Life insurance policies act as financial protection for your family when you are no longer there to look after them. Thus, most family heads consider buying such policies to safeguard their family’s financial security and life goals.

However, policyholders often make some mistakes while choosing an insurance policy, which leads to inadequate coverage or other hassles in the long term. So, if you plan to buy a life insurance or term insurance, here’s a complete guide on the common mistakes to avoid.

Top 8 Mistakes to Avoid While Buying a Life Insurance Plan

Here are the top 8 mistakes that one should avoid while buying life or term insurance online or offline:

1. Choosing Insufficient Coverage

Most policyholders end up selecting a low coverage for their insurance policy. This usually happens as they do not analyse the change in their financial needs after a few years. The cost of living is increasing with each passing day.

Thus, if you choose a policy period of 5 or 10 years, you need to calculate the sum assured based on the expenses you must bear after that period.

Your life insurance coverage should be 10 to 15 times your annual income to ensure complete protection for your family’s finances. It should cover everything, from maintaining living standards to fulfilling financial goals.

2. Choosing a Policy Without Comparing

Some people randomly buy a life insurance policy without checking out other plans or insurance companies. However, it is essential to compare different life insurance policies before ensuring you get the maximum coverage for the money you are paying.

Thus, you must compare the benefits, premium amount, claim settlement ratio, customer service availability, etc., offered by different insurers before purchasing a policy.

3. Buying too Many Add-ons

Add-ons or riders are extra benefits that enhance your life insurance coverage. While they can be beneficial, adding too many riders can strain your budget. Conversely, ignoring riders altogether means missing out on valuable additional protection. So, you must choose riders that align with your personal and family goals.

4. Not Purchasing a Policy on the Right Time

Experts advise starting early with financial planning. Younger individuals usually tend to have fewer responsibilities and tend to get lower premiums due to their higher life expectancies.

As family and lifestyle expenses increase, managing budgets becomes more challenging. Therefore, prioritising financial security should be a key goal once one begins earning. A delay in the purchase can lead to a higher premium payment to cover your requirements adequately.

5. Providing Incorrect Information

Entering the wrong personal or medical information while purchasing a life insurance policy can cause major issues during claim settlement. Policyholders may enter incorrect details during a hurry or sometimes intentionally to hide their medical conditions. However, this can nullify their insurance claim and lead to loss of benefits.

6. Neglecting e-Insurance Options

Many prefer buying insurance through agents, but exploring e-insurance offers several advantages. Online IRDA-approved aggregators enable comparing plans for maximum coverage at cost-effective premiums without hidden costs.

Also, e-insurance allows users to browse policy terms and select a plan that best aligns with their requirements.

7. Selecting Insurer Based on Claim-Settlement Ratio Only

While buying life insurance online, most individuals consider the claim-settlement ratio of the insurance company as the main parameter to decide the insurer’s reliability. However, these ratios include all types of claims, including minor ones.

It is crucial to evaluate other factors and conduct thorough research on a company before purchasing a policy instead of relying solely on this metric.

8. Not Reading the Policy Terms Properly

Policyholders often neglect to understand policy terms, which can lead to several issues in the future. One should always read the terms and conditions, inclusions, and exclusions carefully.

Otherwise, a situation may arise when they claim certain requirements not even covered under the policy. This would lead to claim rejections, affecting your profile and credit score.

You can make informed decisions now that you know the common mistakes to avoid while buying a life insurance policy or a term plan. Securing the right life insurance policy will protect your family’s financial future and ensure their life goals are fulfilled.

So, you must take the time to assess your needs, compare policies, and understand the terms and conditions before deciding. Consulting with a financial advisor can also provide valuable guidance.