Saving small amounts right from the day you start earning will help you reach your financial goals, fund your children’s education, maintain a good lifestyle, provide for contingencies, and plan for retirement as well. One can save by investing in a wide range of asset classes and financial instruments. A diverse portfolio is less risky and has a higher probability of better returns in the long run. Savings is not necessarily about keeping money in the bank account. The best investment plans in India recommend investing in life insurance policies that can give you a life cover, offer guaranteed returns, and/or support post-retirement.
With a plethora of information available online, it is easy to get misled into buying something that may do more harm than good in the medium-long run. People prefer transacting online because of convenience. In large cities, travelling to branches is tiring and time-consuming. Unpredictable work schedules make it difficult to meet insurance advisors at home, whereas meeting them at the office may not help because of tight schedules. After all, one has to spend quality time understanding the options and taking a prudential decision.
With the advent of hassle-free online payments using credit/debit cards, UPI, etc, paying for a policy is quick and simple. COVID-19 has hastened this trend further because this is the most effective contactless buying method. At the same time, people tend to make some common mistakes, out of oversight, while buying a savings plan online.
#1 Providing Incorrect Information
Life insurance is a contract based on trust, and while the life insurer has to disclose everything to the public, you are responsible for disclosure in the application form. When you buy a life insurance policy, anything that can affect your health or life needs to be declared to the insurer.
The application form generally asks about the following:
- Lifestyle habits like smoking, alcohol use etc.
- Health condition, recent medical recoveries
- Family history with health-related issues
Information related to health conditions such as hypertension, diabetes should be disclosed. Any pre-existing/past illnesses should also be mentioned. Questions on social habits such as liquor consumption, smoking should be responded to. Withholding (even unintentionally) information may look like suppression of facts. This may impact the settlement in case the need arises.
Know if you can buy a life insurance without a medical exam in INDIA.
#2 Opting for Excessive or No Riders
Riders make the plans more effective and provide enhanced protection. For example, accident and disability riders give away a fixed amount irrespective of actual expenses incurred. The objective is to help the insured person to meet incidental expenses that may not be covered by the health insurance plan.
Waiver of premium riders, as the name suggests, takes care of the future premiums, in case the person loses income due to permanent disability or a critical illness. However, selecting too many riders will make your policy more expensive.
At the same time, ignoring riders may not be a prudent decision as mishaps do not come with a warning.
#3 Not Understanding the Policy Term
If you buy a small tenured policy when you are young, the policy may terminate even before you reach your 50’s. Although the best saving policy may still be available, you may end up paying more for life protection. Thus, eroding the amount available for investment.
The policy tenure could vary based on the type of policy:
|Policy type||Policy Tenure|
|Term Life Insurance||Maximum coverage period or the number of years your cover will be active from the date of commencement (not purchase, check the policy document for this date)|
|Whole Life Insurance||The policy will continue up to 99 or 100 years of age|
|Lifetime Deferred Annuity Plans||Up to 100 years of your age, or if held jointly, the age of your spouse|
|Other Annuity plans||The annuity will continue till this period only|
|Child Plans||The number of years the plan will continue to cover your life and grow the corpus|
#4 Choosing Insufficient Sum Assured
This is one of the most common mistakes. Opting for either a very large or a very small insurance cover can defeat the purchase of the policy or make it unsustainable. When deciding the Sum Assured, be realistic on what you can pay each year.
You must also factor in the amount your family may need in case you are not around. The Sum Assured should be decided basis these two parameters.
Here again, the choice of the type of life insurance plan will make a difference:
- Term Insurance Plan: Get a life cover of 10 to 15 times your annual income
- Savings Plans: Add a life cover that is at least 10 times the amount you will invest every year
- Pension Plans: Life cover is decided based on your total investment. So, you may not have to worry about the size. However, avoid going for a very large cover amount.
#5 Selecting a Long-Term & Inflexible Plan
Look at plans that allow partial withdrawals, milestone-based pay outs, etc. Contingency expenses are unpredictable. Say, you have to urgently buy a computer or replace your faulty appliances. Top insurance plans permit partial withdrawals to manage such unexpected expenses.
Canara HSBC Oriental Bank of Commerce Life Insurance offers Money Back Advantage Plan to suit individual lifestyles and aspirations at various life stages. If you plan to go abroad for a mid-career refresher program or aspire to renovate your home every few years, flexibility in investment plans will help you meet your financial goals without compromising on your lifestyle.
Loan on policy and collateral for the loan are two more features to look out for. These flexibilities allow you to operate your insurance policy just like a savings bank account, albeit, with many more benefits!