Buying a life insurance plan? Avoid these mistakes

6 MinsJan 12, 2022

Life Insurance is a fundamental aspect of financial planning. It provides the required financial security to your loved ones in your absence. In other words, Life Insurance compensates the risk to your life and protects your dependants from a financial loss in the case of an unfortunate event. But while many of us do buy life insurance, we often end up making mistakes. Let’s see what these mistakes are:

buying life insurance plan

1. Putting it off for laterThe more you delay buying life insurance, the higher would be your insurance premium. This is because as age advances, you are susceptible to ailments and this puts you in a disadvantageous situation. To avoid such a scenario, it is advisable to buy an appropriate life insurance plan with optimal insurance cover as soon as you start earning. The COVID-19 pandemic has taught us that the earlier you insure your life, the better it is for your family’s financial wellbeing. 

2. Not reading the fine print  The policy documents contain important information such as product features, inclusions, exclusions, and other terms & considerations. If you do not read all these details carefully, you might end up with a plan that is not suited for you. Hence, make an informed decision so that you can avoid future disputes.

3. Sub-optimal cover – When you’re addressing your insurance needs, you need to ask: “Will the insurance coverage sustain my family’s needs once I’m gone?” Only when you answer this question honestly, you would be able to insure your life optimally. Assessing your Human Life Value (HLV) will help you estimate your life insurance needs optimally and scientifically, rather than taking the decision arbitrarily. You need to account for the following aspects to determine an optimal insurance cover:

  • Your current age
  • Monthly expense 
  • The amount of savings and investments you have 
  • The inflation factor
  • Outstanding loans (if any) and the responsibilities you are shouldering 
  • The amount needed to fulfil your future financial goals 
  • Your existing life insurance coverage

Axis Bank’s Life Insurance Cover Calculator will help you estimate the optimal life insurance cover you may need (taking into consideration all these aspects) to ensure the financial security of your family in your absence.

[Also Read5 Aspects to Consider Before Buying a Life Insurance Policy]

4. Ignoring relevant riders – Using insurance riders you would be able to increase your cover and customise your life insurance plan. Two important riders you could consider for a nominal increase in premiums are:

  • Accidental Death Benefit - In case of death due to an accident during the term of the life insurance policy, the entire sum assured will be paid to your nominee
  • Critical Illness Rider - On diagnoses of certain critical illnesses during the term of the policy, the future premium payments are waived off, while your life insurance and other riders, if opted for, continue

5. Inadequate policy term – If you opt for a shorter tenure life insurance plan, it may not provide the required financial security. You need to ascertain your current age, the current age of your dependent family members, how many years you plan to work, and your existing investments and assets to determine an adequate policy term. Ideally, the longer the tenure, the better it is. This will address the concern of you outliving the policy term. 

6. Providing incorrect information to the insurer – Do not commit this mistake when buying a life insurance plan. If an insurer finds any misrepresentation of the information provided at the time of purchasing the plan or filing the claim, there are chances that your claim may be rejected. Hence, always provide true and accurate information, including medical history, pre-existing medical conditions, whether you indulge in lifestyle choices (drinking and smoking), occupational hazards, etc. 

7. Not reviewing your insurance requirements – During your lifetime several events will impact your financial planning. For example, marriage, the birth of a child, job loss, taking a home loan, etc, may require you to opt for a higher Life Insurance cover. Hence, all such events require that you review your life insurance needs at regular intervals. 

8. Not informing your family about the life insurance policy – Even if you buy an appropriate life insurance plan with adequate coverage, but don’t inform your family members about it, it may not be of any use to them. They would find it difficult to make the claim and get the funds when the need arises. Hence, when you buy a life insurance plan, inform your family members about it and its whereabouts no matter how uncomfortable this discussion may be. This will help them claim the money easily in your absence. 

Axis Bank offers Life Insurance policies by insurers like Max Life Insurance, Bajaj Allianz Life Insurance, and LIC of India, all under one roof. Buy the right product now based on your needs and lead a stress-free life.

Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision