life insurance
Buying Life Insurance. flickr/moolanomy

Life insurance is needed to secure the future of the family after death. The money drawn can be used for various purposes, including child’s education, paying off loans and debts or securing retirement of spouse. Buying life insurance is important to secure a family’s future and hence, one must be cautious while doing so or it can turn out to be disastrous.

Here are the 5 common mistakes to avoid while buying life insurance.

1. Not choosing the right type of insurance policy

There are two types of insurance policies – term and permanent. Term life insurance policy offers coverage for a specific period of time. On the other hand, permanent life insurance policy remains in place as long as one continues to pay the premiums. Whole life insurance (consistent premiums, guaranteed cash value accumulation) and universal life insurance (flexible premium payments, death and savings benefits) are two main types of permanent life insurance policies.

One must weigh the goals against the cost and then choose a type of policy. For instance, a term life insurance policy is best suited if coverage is needed for a defined reason. On the other hand, for return on investment, permanent life insurance policy is a viable option.

2. Focusing on price and not on coverage

One of the common mistakes to avoid while buying life insurance is focusing on the price and not the coverage. Never go for a cheaper policy because it has low premium rates. Paying low premiums sounds good initially but when it is not contributing to enough savings, it is worthless.

3. Not disclosing information

Fill all correct details in the form while buying life insurance, including medical details, job description and other details. Not disclosing all the relevant information might help save on premiums but that can also lead to the policy becoming void during claim. Hence, be honest and disclose all your personal as well as professional information.

4. Going for long term and inflexible plan

People often choose traditional life insurance plan as returns on these life insurance policies are steady and predictable. This is one of the common mistakes to avoid while buying life insurance as these plans are costly in comparison to pure term insurance plan. Furthermore, they are inflexible and exit due to any reason is costlier.

5. Not accepting loading by insurer

When an insurer revises premium plans for a higher rate after medical tests, people generally reject the policy and look for other optio ns. Loading means that the insurer has accepted the medical condition and this wouldn’t impact the claims. Going for another policy or company would mean lesser premium but that would impact on the amount to be claimed later on. Hence, not accepting loading by is one of the common mistakes to avoid while buying life insurance.