Buying a term insurance policy for tax saving? Avoid these mistakes
The decision to buy a life insurance policy in a hurry can only drain water to take it.
The easiest way to save tax is to buy a life insurance policy. This is what most people doing tax planning do at the last minute. March 31 is the tax-saving deadline for the financial year 2020-21. However, the decision to buy a life insurance policy in a hurry can only drain the purpose of taking it. Here we are telling about some common mistakes that are made in buying a life insurance policy.
1. To blindly trust the adviser
Many times, the relationship managers, insurance agents of the bank, who are advising to buy life insurance, have their interests attached. They insist on purchasing such products to increase the commission amount. In such a situation, there is every chance that the advice being given is not in your best interest. Therefore, instead of blindly believing, you should ask about the advantages and disadvantages of the policy.
2. Understanding all life insurance policies
Some people feel that all types of life insurance policies offer the same tax benefit. Due to this misunderstanding, people buy the wrong insurance policy which does not match their needs. There are mainly three types of life insurance policies. These include term plans, endowment plans, and unit-linked insurance plans (ULIPs).
In the term plan, the beneficiary gets the sum assured in case the policyholder dies. If nothing happens to the policyholder during the term of the policy, then nothing is received. In such policies, much insurance is available in less money.
Endowment plans and ULIPs are hybrid products. They offer a mix of both investment and life insurance. These products have less cover as compared to term plans. These plans pay the maturity value to the policyholder in case nothing happens.
In this way, if you need pure life insurance, it is not wise to buy an endowment plan or ULIP.
3. Buy more or less cover less
Many people buy all life insurance policies without knowing their insurance needs. This is also a common mistake. If you are buying more cover than necessary, then it is a waste of money. Higher premiums will also reduce your savings. Likewise, the very little cover is also not right. With this, the family does not get the necessary support if something happens to the policyholder.
4. Lack of clarity on the term of the insurance policy
Most people do not know for how long a life insurance policy is taken. Therefore, some unnecessarily pay the premium for the policy for a long period, while many take insurance for a very short period. The long-term increase the premium amount. At the same time, the short duration leaves the risk of untoward situations. The right for this is that the life insurance policy should be taken till the age of retirement. By the age of retirement, people have fulfilled their responsibilities. After this, they do not need the protection of life insurance.
5. Not knowing the need to upgrade the insurance cover
People’s lifestyle depends on their income. Life insurance is expected that if something happens to the earning person of the family, then that lifestyle will not be affected. People’s income increases with time. Along with that, lifestyle also improves. In that case, you need more life cover. Usually, life insurance needs to be upgraded when a new member is to be added to the family. Life insurance policy should be updated in important events like marriage and childbirth.
6. Not choosing the right insurance company
It is very important to choose the right insurance company. Make sure that his claim settlement ratio is high. This should be both in terms of the number and amount of the policy. In the matter of giving customers services, his image must also be good. His services should be available digitally.
7. Do not take additional cover
What happens when a person becomes disabled in a major accident so that his income stops? If someone has only a simple life insurance policy, then there will be no payment if the accident survives. It is also a common mistake in taking a term plan which people make. You must take additional protection regarding critical illness or disability. For this, riders like Critical Illness or Accidental Disability can be added to the term plan.
8. Do not buy online
Most life insurance companies offer the lowest rate on purchasing a policy online. If someone buys it offline, they may have to pay a higher premium.
9. Hiding Important Information
While issuing the policy, the insurance company accepts all the information that you give to it. However, the company can stop the claim later if any of this information proves to be false. Often this comes in the case of major illness and consumption of tobacco and alcohol where people hide such information. Therefore, it is important to give correct information. Then even if the premium is not much higher.