Among the most important component for any individual’s financial plan is Life Coverage. Unfortunately, there is a lot of misunderstanding about life insurance – perhaps, due to the way life insurances are sold all over the world. Below are common mistakes buyers should look out for when purchasing life insurance policies.
#1 Avoid underestimating Insurance Requirement
Unfortunately, many insurance buyers select their policies based on the plans their unscrupulous agents advertise or how much premium they are able to pay. Your life insurance requirement ought to be a function of your financial situation, and not what products are available. For instance, think of a buyer that used a thumb rule to buy a policy that offers compensation that is equal to 10 times what he makes in a year. If the individual has got a 20-year mortgage or a home loan to the surface, be sure he’ll run out of cash at a time he’ll need to pay for kids’ higher education! To be on the safe side, ensure the sum assured is enough to fulfill your future obligations and nothing more.
#2 Avoid Buying the Cheapest Policy
While many people fall for cheap policies, it could be a very serious mistake. Companies offering cheap policies are at times unable to fulfill the claim in the event of an untimely death. Others, take a very long time to fulfill the claims. Of course, this is not the kind of struggle you’ll want to leave your family. How about taking some time to assess the metrics of claims settled along with the time the company took to fulfill those claims? A company that successfully fulfill their claims on time come at a higher cost – but they’re worth considering.
#3 Don’t Treat Your Policy as an Investment Plan
People mistakenly think of life coverage as a good investment or retirement planning solution. Of course, some unscrupulous agents sell some policies at a high price to earn high commissions. When you compare the returns from the investment options and life insurance, you’d rather go for the investments. A good financial planner will advise you to take the term insurance plan. A term plan is perhaps the purest form of life coverage.
#4 Avoid Surrendering Life Insurance Policy before maturity
Surrendering before maturity is a serious mistake that compromises the financial security of your family in the event of an unfortunate incident. You’ve got to select the best policy so that you will wait until the unfortunate death occurs or the policy matures. Some people are recorded to surrender their policy to meet an urgent financial need with hope and intentions of buying a new policy once the financial situation improves. Remember: mortality is on in anyone’s control. Also, as you get older, life coverage is expensive.
Investors should avoid the above-discussed mistakes when buying life coverage plans. As among the most imperative component in any financial plan, one ought to give a thoughtful consideration on the plan. Engaging in a professional financial planner for professional advice is worthwhile!