Keep clear of Such Eight Standard Your life Insurance Slipups

Life insurance is among the most crucial the different parts of any individual’s financial plan. However there’s large amount of misunderstanding about life insurance, mainly because of the way life insurance products have already been sold over time in India. We have discussed some typically common mistakes insurance buyers should avoid when buying insurance policies.

1. Underestimating insurance requirement: Many life insurance buyers choose their insurance covers or sum assured, on the basis of the plans their agents want to sell and how much premium they could afford. This a wrong approach. Your insurance requirement is just a function of one’s financial situation, and has nothing do using what products are available. Many insurance buyers use thumb rules like 10 times annual income for cover. Some financial advisers say a cover of 10 times your annual income is adequate because it gives your loved ones 10 years worth of income, when you are gone. But this is simply not always correct. Suppose, you have 20 year mortgage or home loan. How will your loved ones pay the EMIs after 10 years, when most of the loan is still outstanding? Suppose you have very young children. Your household will run out of income, when your young ones need it the absolute most, e.g. because of their higher education. Insurance buyers need to take into account several factors in deciding how much insurance cover is adequate for them.

· Repayment of the whole outstanding debt (e.g. home loan, car loan etc.) of the policy holder

· After debt repayment, the cover or sum assured needs to have surplus funds to generate enough monthly income to cover all of the living expenses of the dependents of the policy holder, factoring in inflation

· After debt repayment and generating monthly income, the sum assured should also be adequate to generally meet future obligations of the policy holder, like children’s education, marriage etc.

2. Choosing the least expensive policy: Many insurance buyers like to get policies which are cheaper. This is another serious mistake. An inexpensive policy is no good, if the insurance company for reasons uknown or another cannot fulfil the claim in case of an untimely death. Even when the insurer fulfils the claim, if it requires a lengthy time for you to fulfil the claim it is obviously not really a desirable situation for group of the insured to be in. You must look at metrics like Claims Settlement Ratio and Duration wise settlement of death claims of different life insurance companies, to select an insurer, that may honour its obligation in fulfilling your claim in a regular manner, should such an unfortunate situation arise. Data on these metrics for the insurance companies in India comes in the IRDA annual report (on the IRDA website). It’s also advisable to check claim settlement reviews online and only then choose a company that has a great track record of settling claims.

3. Treating life insurance being an investment and buying the incorrect plan: The most popular misconception about life insurance is that, it can be as a great investment or retirement planning solution. This misconception is largely due with a insurance agents who like to sell expensive policies to earn high commissions. In the event that you compare returns from life insurance to other investment options, it just does not make sense being an investment. If you are a young investor with quite a while horizon, equity is the best wealth creation instrument. Over a 20 year time horizon, investment in equity funds through SIP will result in a corpus that’s at the least 3 or 4 times the maturity number of life insurance plan with a 20 year term, with the same investment. Life insurance should always been regarded as protection for your loved ones, in case of an untimely death. Investment should be considered a completely separate consideration. Bedrijf  Even though insurance companies sell Unit Linked Insurance Plans (ULIPs) as attractive investment products, on your own evaluation you should separate the insurance component and investment component and pay attention from what portion of one’s premium actually gets allocated to investments. In the early years of a ULIP policy, just a bit goes to buying units.

A good financial planner will always advise you to get term insurance plan. A term plan may be the purest kind of insurance and is just a straightforward protection policy. The premium of term insurance plans is much significantly less than other types of insurance plans, and it leaves the policy holders with a much bigger investible surplus that they can invest in investment products like mutual funds that give much higher returns in the future, compared to endowment or money back plans. If you are a term insurance policy holder, under some specific situations, you might decide for other types of insurance (e.g. ULIP, endowment or money back plans), along with your term policy, for your specific financial needs.

4. Buying insurance for the objective of tax planning: For several years agents have inveigled their clients into buying insurance plans to save tax under Section 80C of the Income Tax Act. Investors should recognize that insurance has become the worst tax saving investment. Return from insurance plans is in the number of 5 – 6%, whereas Public Provident Fund, another 80C investment, gives near to 9% risk free and tax free returns. Equity Linked Saving Schemes, another 80C investment, gives much higher tax free returns over the long term. Further, returns from insurance plans might not be entirely tax free. If the premiums exceed 20% of sum assured, then compared to that extent the maturity proceeds are taxable. As discussed earlier, the most crucial thing to see about life insurance is that objective is to supply life cover, never to generate the very best investment return.

5. Surrendering life insurance policy or withdrawing as a result before maturity: This is a serious mistake and compromises the financial security of your loved ones in case of an unfortunate incident. Life Insurance should not be touched until the unfortunate death of the insured occurs. Some policy holders surrender their policy to generally meet an urgent financial need, with the hope of purchasing a new policy when their financial situation improves. Such policy holders need to consider two things. First, mortality isn’t in anyone’s control. That’s why we buy life insurance in the very first place. Second, life insurance gets very costly because the insurance buyer gets older. Your financial plan should give contingency funds to generally meet any unexpected urgent expense or provide liquidity for a period of time in case of an economic distress.

6. Insurance is just a one-time exercise: I am reminded of a classic motorcycle advertisement on television, which had the punch line, “Fill it, shut it, forget it” ;.Some insurance buyers have the same philosophy towards life insurance. After they buy adequate cover in a great life insurance plan from the reputed company, they think that their life insurance needs are cared for forever. This is a mistake. Financial situation of insurance buyers change with time. Compare your present income together with your income 10 years back. Hasn’t your income grown several times? Your lifestyle would likewise have improved significantly. If you purchased a life insurance plan 10 years ago based on your income in the past, the sum assured won’t be enough to generally meet your family’s current lifestyle and needs, in the unfortunate event of one’s untimely death. Therefore you should buy yet another term want to cover that risk. Life Insurance needs need to be re-evaluated at a regular frequency and any extra sum assured if required, must be bought.

Life insurance is among the most crucial the different parts of any individual’s financial plan. However there’s large amount of misunderstanding about life insurance, mainly because of the way life insurance products have already been sold over time in India. We have discussed some typically common mistakes insurance buyers should avoid when buying insurance policies.…

Life insurance is among the most crucial the different parts of any individual’s financial plan. However there’s large amount of misunderstanding about life insurance, mainly because of the way life insurance products have already been sold over time in India. We have discussed some typically common mistakes insurance buyers should avoid when buying insurance policies.…