Things People Overlook While Buying Insurance Plans

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Pune, 22nd June 2024: When it comes to supporting the financial needs of those who rely on you, life and health insurance coverage comes in handy. Consider this scenario: you’ve finally decided to get the insurance plan you’ve been wanting for a long time. You choose a plan, sign the paperwork, and feel relieved. But what if you later realize the plan does not meet your needs?

Unfortunately, this happens more frequently than we would prefer. It’s easy to lose track of important information in the midst of selecting the insurance plans. Many policyholders, however, either ignore insurance entirely or, if they do, wrongly estimate the amount of protection required, leaving them grossly underinsured. In this article, we are going to take a look at some typical mistakes people make when purchasing insurance, so you can make an informed selection that actually protects you.

Choosing the wrong insurance plan for Your needs: There are different types of insurance plans. Sometimes focusing entirely on the salesperson’s pitch, one can miss the overall picture. Do you need life insurance plans to protect your family’s future, or is health insurance a better option for managing medical expenses? Identifying your primary need ensures that you receive the appropriate sort of coverage.

Ignoring the policy wording: Insurance policies are legal papers containing crucial information. Skipping over them is never a good idea. Terms such as “deductible,” “sub-limits,” and “exclusions” in health insurance can have a substantial impact on your coverage. Understanding these concepts enables you to select a plan that is compatible with your financial situation and addresses what is genuinely important.

Underestimating the Coverage Needs: Life throws curveballs, and medical bills can skyrocket unexpectedly. While a low-coverage health insurance plans may sound appealing at first, it may leave you financially vulnerable in the long run. Consider issues such as future earning potential, dependents, and prospective inflation when determining the appropriate level of coverage.

Not comparing options: The first insurance plan you come across may not be the most effective. Spend time studying and comparing various insurance providers’ services. Do not be hesitant to negotiate better rates or terms. Remember that putting in a little work can result in significant savings and allow you to get the best coverage.

Not linked to any goal: Many policyholders get life insurance plans to start their savings plan or to save taxes. As a result, the policy does not place much emphasis on the amount of protection. This can be demonstrated by the fact that the sum assured is typically inadequate in most circumstances, and the majority of the purchasing takes place during the last three months of the fiscal year. Whatever life insurance product one purchases, it is preferable to tie it to a goal.

If you want to acquire a term plan, you should ideally link it to a financial safety net for long-term goals like children’s schooling, marriage expenses, and so on. As a result, the tenure of the term plan should be determined beforehand. Similarly, if someone wants to develop a retirement corpus through insurance products, purchasing a ULIP and investing in an equities fund (from the ULIP’s funds) offer excellent possibilities. Unless the aim is clearly recognized and linked, one is more likely to make a costly exit from the policy.

Not filling out the application form yourself: Most consumers let insurance agents to complete the application form. This could make a significant difference at the time of claim. You should ideally complete the form yourself. As part of the underwriting process, the insurer requires you to provide a variety of health, financial, and dependent information when applying. Filling out the form yourself allows you to better understand the insurer’s processes. Remember that any incomplete or incorrect information provided to the insurer may cause complications during the claims process.

Not purchasing insurance in the wife’s name: Consider this if you believe that women who stay at home do not need life insurance plans because they do not earn and so have no financial dependents. Even if she does not provide any cash to the household, the opportunity cost of her absence in managing the house and children is significant. Although it is not the usual, insurers only cover them if the spouse is insured, and the maximum sum assured is limited to that of the spouse.

Even if both spouses work, insurance is still required: Working couples may be unaware of the importance of insurance because they both make money and are not financially dependent on one another. However, if an unforeseen event occurs, the surviving member is responsible for sustaining the same quality of living. The loss of income from one member could harm any financial ambitions of the family members. As a result, because both are contributing, they must be appropriately insured.

If both are working and earning enough to cover around 75% of monthly home expenses, there is no need for life insurance plans as long as there are no outstanding loans and no financial dependents (e.g., children/aging parents). If loans are outstanding, enough insurance coverage must be obtained to cover the loan balance. This is to ensure that if one of them dies, the survivor is not burdened with repaying the loan alone. Both can get life insurance plans, ideally ones with a joint-life option. 

Not updating the nomination: Some policyholders fail to make a nomination while applying for a plan, leaving it to be filled out later. To minimize legal disputes among surviving family members and relatives, verify that the nomination is correct and updated. If an unmarried individual’s nomination is in favour of a parent, it must be changed after marriage. If missed, it might lead to unnecessary complications.

Nomination guarantees that the insurer transfers the death claim proceeds to the nominees. Until now, nominees in life insurance plans were not beneficiaries. They received the insurance proceeds on behalf of the policyholder’s legitimate heirs. The updated Insurance (Amendment) Act of 2015 established a ‘beneficial nominee’ category, which covers only close relatives of policyholders. According to this new clause, if a person nominates someone as a ‘beneficial nominee’, the candidate becomes both the receiver and the final beneficiary. The new clause also makes it easier for policyholders to name several candidates and their shares of the proceeds.

So we are saying,

Do your research, understand your needs, and don’t be afraid to ask questions. With the right insurance plan, you can face the future with more confidence and peace of mind.