Buying life insurance has never been easier. These days life insurance is a click or phone call away. Lots of money being pumped into advertizemet is also making the awareness go up. Today we are looking into the common mistakes a first time life insurance buyers typically make.
Common mistakes First time Insurance Buyers make
They do not know their true worth
One of the most common mistake that first time life insurance buyers make is buying an insurance policy for a random cover. I have often met people who instead of calculating a need fix a random value and ask for an insurance. More often or not the amount they wish to buy is either too less or too much for their current income level. Always remember the primary purpose of a life insurance policy is to supplement your income in your absence. As a rule you need insurance only if you have dependents and you need as much for your dependents to maintain at least their current lifestyle for years that they would be dependent on your income.
They mix insurance with investment
Another common mistake that first time life insurance buyers make is buying an insurance policy for an investment or to save income tax under section 80C. As a rule of thumb one should not mix insurance and investment. If you like the concept of market linked or endowment plans use it only to diversify your investment portfolio but never as your first insurance product. The first insurance product should always be a term plan that covers your insurance needs and not investment cum insurance. Your dependents will get peanuts out of these products if anything happens to you. Never spread yourself thin with insurance products.
They prefer convenience
Another common mistake that first time life insurance buyers make is to prefer convenience of buying. A product that is convenient to buy does not guarantee that it will be convenient to claim. A friendly buying website or a friendly neighbourhood agent makes it easy to buy but you should do enough research on choosing an insurance company that has a great track record of claim settlement. There are many websites or agents that have the convenience to shop through web or phone. A friendly execute will visit your home to collect documents. Some even send a paramedic to take your basic medical tests. Offers of no medical tests may sound convenient but at the time of claim the insurance company will investigate your medical condition. Even a small omission wilful or otherwise may lead to claim rejection.
IRDA publishes an annual report on claim settlement ratio this is a good starting point to kick start your research. Another great way to research is to speak to people who have had made claims in the past. They will tell you how easy or hard has it been dealing with a particular insurance company while claiming the amount. Remember the claim has to be made by your dependents while you are not there for them. Even if it takes extra bit of pain please take that, your do not want your grieving dependents an extra burden of fighting the claim with an insurance company.
They are caught unprepared during an insurance sales
Another common mistake that first time life insurance buyers make is being caught unprepared when they are meeting an agent or over a sales call. If the agent realizes you are not prepared well to understand insurance concepts they might pitch in various things which sound attractive at first place but it may not be a requirement. It is often better to research before meeting an agent so that you are not misled into buying a product you do not need. Remember the golden rule I told you your first insurance product has to be a term plan. Security first!
They are looking for cheaper premium or a cut from agent’s commission
Another common mistake that first time life insurance buyers make is to look for cheaper premium or a cut from agent’s commission. Unless you are looking to do a formality of buying an insurance do not look for cheapest plan. There are no cheap plans. Which one of the two insurance company would you prefer?
- Annual premium of Rs. 10000/- for a term plan with a company that is very convenient to buy , medical tests waived off, not all income documents required BUT has very poor track record of settling claim OR
- Annual premium of Rs. 15000/- for a term plan with a company that does a detailed medical tests on you, takes all your financial documents but has a good track of settling claims
There are many agents who can offer you rebates from commissions they earn from the company. These agents are not only violating section 41 of the insurance act but also looking to make the sale through at any cost. You need to think carefully why would an insurance agent pass on all or major part of his earning to you. There can be many reasons why the agents pass on few of these are listed below.
- Creating a monopoly – pass all or more that what they earn so that other agents in the area quit
- Desperation – they might be desperate to meet their targets hence passing their income.
- They have identified a penny wise and pound foolish person in you. It is your day today, they are confident they will earn more later.
- Breaking your existing relationship with another agent or company: they need to bring you out of a particular company or agent into their own fold. Initial sops or discounts is a proven practise of luring customers.
It will be your choice if you really want to engage with such cunning or desperate agent(s).
Photo by doobybrain 
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