The easiest way to save tax is by buying a life insurance policy. This is what most people doing last-minute tax planning do. March 31 is the last date for tax saving for the financial year 2020-21. However, a hasty decision to buy a life insurance policy can sabotage the very purpose of taking it. Here we are telling about some of the common mistakes that happen in buying a life insurance policy.
1. Blindly trusting the advisor
Many times the relationship managers of the bank, insurance agents advising to buy life insurance have their own interests attached. They insist on buying such products to increase the commission amount. In such a situation, there is every possibility that the advice being given is not in your best interest. So, instead of blindly believing, you must ask about the advantages and disadvantages of the policy.
2. Understanding all life insurance policies as one
Some people feel that all types of life insurance policies offer similar tax benefits. Due to this misunderstanding, people buy the wrong insurance policy which does not match their needs. There are mainly three types of life insurance policies. These include term plans, endowment plans and unit linked insurance plans (ULIPs).
In a term plan, the beneficiary gets the sum assured in case the policyholder dies. The policyholder gets nothing if nothing happens during the term of the policy. In such policies, a lot of insurance is available for less money.
Endowment plans and ULIPs are hybrid products. They offer a mix of both investment and life insurance. The cover in these products is less as compared to term plans. These plans pay the maturity value to the policyholder in case nothing happens.
Thus, if you need pure life insurance, it is not wise to buy an endowment plan or a ULIP.
3. Buying more or less cover than required
Many people buy multiple life insurance policies without knowing their insurance needs. This is also a common mistake. If you are buying more cover than you need then it is a waste of money. Higher premium will also reduce your savings. Similarly, too little cover is also not good. Due to this, the family does not get the necessary support if something happens to the policyholder.
4. There is no clarity on the term of the insurance policy.
Most of the people do not know for how long to take a life insurance policy. Therefore, some unnecessarily pay the premium of the policy for a long period, while many take insurance for a very short period. The longer term increases the premium amount. At the same time, short duration leaves the risk of untoward situations. For this it is right that the life insurance policy should be taken till the age of retirement. By the age of retirement, people have fulfilled their responsibilities. After this, they do not need the protection of life insurance.
5. Not knowing the need to upgrade the insurance cover
Lifestyle of people depends on their income. It is expected from life insurance that if anything happens to the earning person of the family, then that lifestyle should not be affected. People’s income increases with time. At the same time, the lifestyle also improves. In that case, you need more life cover. Usually life insurance needs to be upgraded when a new member is to be added to the family. The life insurance policy should be updated in important events like marriage and the birth of a child.
6. Not choosing
the right insurance company Choosing the right insurance company is very important. Make sure it has a high claim settlement ratio. This should be both in terms of the number and amount of the policy. It is also necessary to have a good image in terms of providing services to the customers. Its services should be available digitally.
7. Not taking additional cover What if
a person becomes handicapped in a major accident that stops his income? If one has only a simple life insurance policy, then there will be no payment for surviving the accident. This is also a common mistake that people make while taking a term plan. You must take extra protection against critical illness or disability. For this, riders like critical illness or accidental disability can be added to the term plan.
8. Do not buy online
Most of the life insurance companies offer the lowest rate on buying a policy online. If someone buys it offline then he may have to pay a higher premium.
9. Concealment of essential information
While issuing the policy, the insurance company accepts all the information that you give to it. However, if any of these information is proved to be false later, the company can stop the claim. Often this comes to the fore in case of major disease and consumption of tobacco and alcohol where people hide such information. Therefore, it is important to give correct information. Then even if the premium may be slightly higher.