Life Insurance is a vital element in our overall financial planning. It is a key financial instrument when it comes to meet financial obligations in case of an emergency.
As a matter of fact, without Life Insurance you just cannot imagine a secured and financially stable life. With Life Insurance, you can protect your family’s future in case of your demise.
Simply speaking, you just cannot rule out uncertainties and fatal events in your life and so the best way to overcome them is to have adequate Life Insurance coverage with you all the time.
However, having a life insurance cover demands right decisions from you so that you have the right kind of life insurance cover at a cost that is always within your budget. So, besides having the knowhow of Life Insurance, you must also prepare yourself well so that you can avoid mistakes that might result in course of your purchasing life insurance coverage.
The life insurance mistakes can ultimately prove costly to you both from the financial point of view as well as from the insurance point of view.
For example: if you do not have the right amount of life insurance coverage with you it is good as having no life insurance coverage because it will not protect you in case if any unexpected event happens in your life and you require financial protection.
So it becomes important to know and be aware of life insurance mistakes that can occur if you are not careful enough to avoid them when you are purchasing life insurance coverage.
Hereunder, I have illustrated 5 Life Insurance Mistakes that you should avoid at all costs if you really want that life insurance can prove a helpful hand when you are faced with life’s uncertainties and dreadful events.
5 Life Insurance Mistakes
1. Delaying The Decision To Take Life Insurance Coverage
When you delay and postpone the decision to take life insurance coverage, you leave your family vulnerable to life’s unexpected and vulnerable events which may occur with no prior warning to you.
So, with no life insurance coverage, your family is absolutely unprotected, and sadly, if anything happens to you, your family may land up in a messy situation. When you delay and go on postponing the decision to take life insurance cover, mind that you are making a heavy mistake that can prove really costly to you.
Thus, if you really take care of your family, you must get a life insurance cover as soon as possible.
Moreover, life insurance premiums increase as we get older and if any health issues plague you then besides an increase in the premium amount it may also happen that the insurance company may even deny you life insurance cover.
2. Having Insufficient Life Insurance Cover
Generally, people do not pay attention to the amount of life insurance cover they have with them. For them, having a life insurance cover means having a life insurance policy with no attention on the amount of life insurance coverage. That’s it. However, in reality this is a major mistake that should be avoided at all cost.
Having insufficient life Insurance cover is as good as having no life insurance cover with you. This is a life insurance mistake you should avoid.
Actually, your life insurance cover should be of such value that it should be able to replace your monthly earnings if you are the only person who is responsible for maintaining the livelihood of your family (in the event when you are no longer there with your family).
Ideally speaking, your Life Insurance Cover should equal ten to twelve times your income. So when your insurance proceeds are invested, you happen to get a rate of return that can replace your lost earnings and can so provide an adequate security to your family. This is all the more important, when you are the sole breadwinner for your family. Your family needs to have proper financial protection for a long time so that they can live comfortably and maintain their lifestyle even when you are not there with your family.
3. Premium Being The Deciding Factor For Your Life Insurance Cover
Actually there are two approaches of having life insurance cover. Firstly, you figure out the premium amount and then decide the life insurance cover. The second way is that you first find out your life insurance needs and then decide to take a plan that suitably reimburses you.
When you let the Premium Amount be the deciding factor in your decision to take life insurance cover, you are taking the wrong route to having life insurance cover.
Truly speaking, Life insurance should be the primary element in your overall financial planning. Without protecting your family financially, how can you think of saving and investments?
Saving and investment should take a back seat and should only figure when you have adequately protected your family through life insurance.
So, do not make up mind that you will only allocate X $ towards life insurance cover. Rather finalize your life insurance needs and then budget your monthly expenditures accordingly. Life Insurance should be your prime priority, and you should not compromise your life insurance needs for any other thing in your life.
4. Having A Short Term For Your Life Insurance Cover
The term of your life insurance cover is very critical issue from the perspective of life insurance. For example, let us take a hypothetical situation. Suppose you have a medical insurance policy for a term of ten years. In the eleventh year, you are diagnosed of a critical illness; however, your insurance policy term has ended, and you would not be able to meet any expense out of your policy as its term had already ended in the tenth year.
This example goes on to show the importance of the term of your insurance plan. Referring to the example above, if you had analyzed and given due importance to the term of your plan, you would have chosen longer term for your insurance policy and thus would have met your financial obligations through your insurance policy. This goes on to show that a short term for your insurance policy is detrimental for you.
Generally, your life insurance cover should have a term by which your children have completed their higher studies and have taken a job and are meeting their livelihood. So, if you have a newborn in your family, then you should at least have a thirty year term of life insurance cover with you.
5. Needlessly Replacing Your Life Insurance Policy
Needlessly replacing your life insurance policy with a new one can be counted among life insurance mistakes. So, think twice before actually replacing your existing life insurance policy. There should be a solid reasoning for doing this, and you should only resort to this step when there is a drastic change in your life circumstances. For example, you are getting married; a baby is born to you, or you meet with an accident, your priorities and life goals have changed, and things like that.
Having said this, you should never replace your life insurance policy in order to get a better performing policy, a policy which has too many riders, or a policy that comes at a cheaper premium.
When you replace your existing policy for these kinds of reasons, you are making life insurance mistake that you should avoid at all cost.
At this point, I again reiterate that life insurance plays a major role in your overall financial plan. Moreover, Life Insurance is a vital component to a healthy personal financial portfolio. An adequate life insurance cover is a must for you so that your family is financially protected at all times.
However, building life insurance portfolio demands certain element of maturity and careful decision making. In this perspective, the 5 Life Insurance Mistakes listed above should be avoided at all times while making a decision related to Life Insurance.
Here, I emphasize the fact that the Life Insurance Mistakes Listed above is not exhaustive in any way, and there might exist many other Life Insurance Mistakes that you should avoid. However, I have tried to incorporate the major and crucial Life Insurance Mistakes that you should avoid (in the above illustration).