Insurance is an excellent investment tool. It offers financial security and peace of mind for you and your loved ones. Whether it is to pay for your child’s future education, medical expenses, look after your parent’s health or simply investing and earning profits, insurance can be useful in several different ways. But, how does one choose the right type of insurance? One that is suited to their financial needs without putting a strain on their wallet or compromising on coverage. An uninformed decision in this case can lead to being stuck with a wrong long-term investment and inadequate coverage.
Let’s look at 5 mistakes to avoid when purchasing life insurance:
Choosing the wrong type of policy:
There are several types of insurance policies to choose from including term insurance, permanent insurance and health insurance. Term insurance is valid for a set period of time and is the most cost-effective option. Permanent insurance remains valid for the entirety of the policyholder’s lifetime and also allows you to build on your investments over time. While health insurance is crucial for different medical emergencies that one might face. When deciding a policy, it is best to outline your financial goals and objectives, and ultimately, what you want the policy to do for you.
Relying on assumptions
The ever-changing economic climate means that you may require more insurance coverage than you had previously. It is best to not plan ahead for your insurance need based on vague assumptions. Always keep a plan ready for different scenarios and choose a policy that provides more coverage than current annual income.
Waiting too long
The quicker in life you purchase health insurance, the safer you can be in terms of unexpected medical expenses. Even when tragedy strikes in the form of a serious illness or health issues, having health insurance will keep you financially stable during this period. If you delay or wait too long for getting insured, there is a big chance that if tragedy strikes – you may end up with large financially draining expenses and not any security to fall back upon during this crisis.
Consequently, a retirement life span should be as long as our active working life span. In simple terms, this means that we should create a substantial corpus during our active working life to be able to maintain the same lifestyle post-retirement. Pension plans are an excellent way of achieving this as they allow us to build on our savings during our working years and give a lump sum on retirement. This lump sum can then be used to a retirement income by investing in an annuity.
Not reading the details
Ensure that you read and understand fully the details mentioned in your policy. Don’t just glance over the details, especially in terms of health insurance as certain scenarios and illnesses are often not covered or omitted. In such cases, get clarity on what illnesses, diseases and scenarios are covered under the policy terms and how the policy will pan out in the future.
Underestimating your insurance needs
Every person has different individual needs when they consider insurance. If you are already in possession of a sizable savings fund with very little to no debt, you might not require as much coverage. In contrast, if your young children and your spouse does not earn a reliable income, you will require enough coverage to provide for them financially over a long period of time. The best method is to weigh your insurance options carefully based on what it provides and how much you are expected to invest in them over the years before selecting an insurance plan.