Today I’m going to walk you through some very common mistakes that people make while buying life insurance. And you should avoid these horrible mistakes before you buy life insurance at all costs.
Insurance is a risk management technique and we may consider it as a necessity to live a hassle-free life. Everyone is exposed to financial hardships but many of us ignore this fact assuming, “Let go and let God handle it!”
Are you one of them?
If yes! Then don’t forget “God helps those who help themselves.” Always have faith in God and hope for the best; but at the same time, always be ready for the worst.
Having an insurance policy provides you peace of mind that you’re ready to face any unforeseen event of medical emergency or in the event of your demise your family can survive without you.
It is indeed that having an insurance is very important but something is more important then an insurance policy.
Do you know what is that?
That’s, buying a right policy that actually fulfills your insurance needs. A right insurance policy can save your money and serve its real purpose when needed. Being over-insured puts extra burden on your pocket and being under-insured does not give the benefits that you supposed to get from it.
We also have seen a common dilemma among policyholders that “What does their life insurance policy cover and doesn’t cover?” Such dilemmas are indications that they (policyholders) have bought policies without knowing the benefits offered by them.
It’s better not buy a policy than buying it without reading terms and conditions.
At IlaInfo, we endeavor to help policyholders to buy life insurance that actually meet their needs. For that purpose, we need your equal participation because we can only show the way, but it’s you who have to walk.
One think I assured you that after reading this post, your time will not go in vain. You’re going learn how to buy a best life insurance policy.
I’ve listed common but very crucial things most of the policyholders ignore at the time of purchasing life insurance policy. These life insurance mistakes can become the cause of claim denial.
Life Insurance mistakes to avoid at all costs
Delaying Life Insurance
You might have many reasons to have a life insurance policy and you probably have decided to buy one. However, like many others, you would be delaying the decision to buy life insurance.
I too did the same. I used to say myself, “That tomorrow I would certainly buy life insurance cover,” but that tomorrow never came. I took a long time to buy an insurance cover (Sigh. I had to pay more premium for this mistake).
Not insuring yourself at early has two drawbacks: it costs more, and you remain uncovered (Who knows when an injury or death going to knock someone’s door?).
If you buy life insurance policy in early age then you pay significantly low premium than you buy the same plan after some years.
Life insurance premium is determined by your age. The sooner a person buys life insurance, the less the premium he pays.
Choosing wrong policy
As I discussed earlier, choosing a right policy is more important than buying an insurance policy. Therefore, before you buy life insurance cover, jot down your insurance needs.
Ask yourself questions pertaining to your insurance needs for instance:
- Why do I need insurance cover? – Ask yourself why are you actually buying life insurance.
- How can I buy best life insurance? – Try to know what things you should keep in mind to purchase a best policy.
- How much cover should I have? – Generally, the insurance cover should be 10 to 20 times of your annual income. For example, suppose John wants to buy life insurance cover and he earns $10,000 anually. In this way, he should have insurance cover ranging from $100,000 ($10,000 x 10) to $200,000 ($10,000 x 20). Though, life insurance cover depends on your current and future financial needs but insurance experts suggest buying insurance cover in this range.
- What should be the term of insurance?
- Do I need to add riders for extra coverage? – Riders are extra covers you buy by paying extra money on your premium to get covered for an event that is not covered by your insurance policy.
- What are the different types of life insurance? – Once should seek answers of such questions from insurance agent too.
While answering these questions consider both your present and future needs. If you’re going to get married or planning a family then buy cover accordingly.
Buying insurance on your own
Choosing a best life insurance policy is not a rocket science. You just have to analyze your insurance needs by considering your present and future conditions. However, in our guide “how to choose best life insurance cover,” we strongly recommend an expert’s advice because they’re professionals and they better know how to invest in best life insurance policy.
Some agents charge consultation fee. According to me, there is nothing wrong in it because they are helping you in a big investment. But if you buy a life insurance policy from him, then you do not have to pay consultation fee because he will get commission from insurer.
So, before you buy life insurance, consult an insurance agent.
Ignoring insurance comparison
To save few bucks, we check products prices on each and every e-shopping website before adding them to our carts. But we forget this important thing when we buy life insurance insurance products; in whom we invest a large portion of our income.
Insurance marketplace is emerging very rapidly around the globe and many new public and private players are offering lucrative offers to attract new customers. Therefore, before buying life insurance policy, visit some insurance comparison websites and compare insurance products to save your money.
There are huge possibilities that you could find an insurance policy at reasonable price.
I did the same before buying health insurance and I got a discount of $28 (₹2000) from my insurer. Also, for buying from insurance aggregator, I got 1-year dental insurance policy for free.
Important: While comparing insurance products, don’t just see price, look at the policy features. A low cost policy may offer you less benefits. Some insurance companies sell very cheap life insurance covers but those policies offer much less benefits than other policies.
Ignoring buying life insurance online
In this era of internet and technology, everything is available at our fingertips. Many insurers sell insurance products online. You can visit an insurer’s website, from whom you want to buy your cover, to check different products offered by him along with prices.
Buying insurance online is more reliable because you buy it directly from the insurer, not through a mediator (agent); but an educated insurance agent guides you better to pick a best policy; if you’re uncertain.
Online insurance aggregators websites can help you choose a best insurance policy. You can ask for help by visiting such websites or calling to their toll free helplines.
Not checking registration of insurance company and agent
There are some insurance regulatory authorities such as Insurance Regulatory and Development Authority of India (IRDAI), National Association of Insurance Commissioners (NAIC) and the like, out there who monitors insurance companies to reduce chances of missellings or frauds.
Due to the presence of these watchdog authorities, barely someone (insurer or agent) can fraud policyholder. However, you can take some precautions from your side to make sure you’re dealing with a genuine insurer and agent.
While buying an insurance policy, check registration of the insurer by visiting concerned authorities’ websites (who regulates insurance sector in your region) like IRDAI (Regulatory and Development Authority of India), it regularly publishes list of registered life insurance companies, health insurers, and non-life insurers on its website.
Also, be sure to check the license of the agent. Do not buy life insurance from him if he does not have a valid license. If an insurance agent does not have a life insurance agent license issued by the insurer, it means that he is not eligible to understand your insurance needs.
Not asking questions
While purchasing a land or home, we ask countless questions from sellers such as why are you selling this property, who is the real owner, are you, Bla! Bla! We ask all these questions because we’re going to indulge in a legal contract.
Insurance is also a legal contract therefore treat it in legal manner.
Ask as many as questions you can (Oh! Related to insurance only). If you’re buying a life insurance with investment component then also ask about various risks, number of switching allowed in a year, charges for managing investment portfolio, and surrender value and the like.
You should read this post, “Ask 9 questions to your agent or say ‘No’.“
It is very common that often people buy insurance through a relative, who is an insurance agent, without knowing, “What does the policy cover and doesn’t cover?”
There’s nothing wrong in buying life insurance through a relative but the problem is without knowing anything about the policy you’re ready to pay premiums.
From whomsoever you’re going to buy life insurance, check agent license and ask questions on premiums, term of insurance, benefits, surrender value (if any), waiting period and the like.
No one can understand your needs better than you. That is why, ask your insurance agent all the questions that pop-up in your mind.
Remember, if you won’t do that, it’d be only you who will suffer (if faced claim refusal), not your agent.
Read terms and conditions
Become an Analytical Buyer, who carefully and thoroughly reads all terms and conditions of a contract without assuming anything, while buying an insurance policy. Insurance is a legal contract between two parties (insurer and insured) therefore in such a contract all terms, conditions, duties, and liabilities should be clear and transparent.
In legal contracts, all parties are bound to obey only written conditions, not verbal commitments that often agents make.
Before filling out proposal form, ask for policy brochure and read it thoroughly without any rush.
Take your time to read it. You may also request your insurance to send policy brochure thorough email or post. Some insurers provide such documents on their websites, you can visit your insurer’s website to download the same.
Not filling out proposal form personally
Fill proposal form yourself and disclose all facts clearly and truthfully as asked in the form. Insurance works on the principle of utmost good faith; therefore, disclose all facts clearly. So in future, you would not face a claim refusal.
Any party (insurer or insured) can cancel the contract if anyone violates the contract for example, if insurer has not disclosed terms and conditions clearly then policyholder can cancel his or her contract, within free-look-period (usually 15 days), after receiving the policy documents.
Similarly, insurer can also refuse to provide insurance cover if insured has concealed important information asked in the proposal form.
Don’t forget to keep a copy of proposal form. It can help you if you refuse policy within cooling-off-period.
Insurance is not an investment
Insurance is a purely risk management technique; in which you invest to tackle any unforeseen event. The sole purpose of an insurance product is to provide financial aid in the event of loss; not to enhance earnings or assets.
Yes! Some insurance products such as Unit Linked Plans, give you some part of your investment as returns at the time of maturity. But if you’re looking for an investment option then you’re on a wrong place.
Buy life insurance cover to tackle with future mishaps. If you want to invest your money to achieve your future financial goals then explore other investment options such as SIPs (Systematic Investment Plan), equity funds and the like.
Having an insurance cover is very much essential, especially in today’s life, in which we’re continuously exposed to different risks. Therefore, buy life insurance right now, don’t postpone the decision. While buying life insurance cover don’t ignore above mentioned points.
It’s often said, “Buy life insurance cover to stay well and live a long life because desperate prayers of your insurer won’t let you die.”