10 mistakes to avoid when buying life insurance

“You only have to do a very few things right in your life so long as you don’t do too many things wrong” — Warren Buffett

Buying life insurance is one of the best decisions you will make in your life. The motivation behind it may vary from one to another, but the primary intent should remain the protection of your loved ones. If you cast your net wide enough, you will learn of someone or some family whose life was devastated because of the lack of foresight and planning by those who were responsible for them.

Here are some mistakes you can avoid when buying your life insurance:

1) The objective of buying insurance is flawed

Most people buy life insurance to save tax on their income. Or to invest and save money for the future. The sole purpose of life insurance is to financially protect your dependents in case of your sudden death. Any other purpose you have in mind needs to be pushed back in the face of this primary need.

2) Underestimating your insurance needs

Imagine a scenario where you have life insurance but in the unfortunate event of your death the cover is not sufficient to support your family and leaves them in a financial crisis. The very purpose of buying life insurance will be defeated. The amount of cover you take should be based on your income, your family’s lifestyle, your loans and the goals you have set for the future.

3) Overlooking the non-working spouse

Even if they don’t make a monetary contribution to the household, the value they bring should not be overlooked. In case of their death you may need to hire help, be it for the household or to raise your children. The amount of cover for them can be tricky so such decisions are best taken with the help of a professional.

4) Neglecting to nominate / update your nomination

Most of us overlook the importance of nominating the right person to take care of the family if you are not around. The purpose of taking life insurance is defeated if the money does not reach the right hands. You should ensure that nominations are not only updated in all policies but they are also reviewed regularly.

5) Not continuing your policy

Almost all insurance policies require regular premium payments to keep the policy active. While the enthusiasm of your life insurance agent will be alive and impressive during the process of taking the policy, most agents do not follow through once the conversion is done and the initial commissions are in their pocket. You on the other hand have taken the policy for a purpose and need to ensure its continuity. Your coverage should last through your working years.

6) Choosing the wrong type of policy

There are many types of life insurance products in the market by various insurance companies offering products that cater to different needs. Not knowing which policy suits your needs the best and still buying the flashiest product available is a common mistake we make. For the most basic of your insurance needs, a term plan is best suited for most of us. For those who wish to take more insurance and add a diversification to their well rounded portfolio, there are various market linked products available as well.

7) Focusing on the price and not the purpose

Life insurance cannot be something you skimp on. When advised to take term cover, a common hesitation is not getting anything at the end of the policy term. Other mistakes involve reducing the cover to keep the premium lower and choosing an unreliable insurance company because they offer cheaper premiums. Let’s not be ‘penny wise, pound foolish’ when it comes to life insurance.

8) Postponing the act of buying insurance

The sooner you buy, the better it is on all counts. Premiums will increase as you grow older. You risk developing a serious illness if you wait too long which will get in the way of getting coverage or cost you more.

9) Not reviewing your insurance coverage

Buying life insurance once is not enough. As your responsibilities grow, so does the quantum of life cover you need.

10) Discounting the value of professional help

Thumb rules are a good place to start — 20 times your income can be good cover when you’re young. But they can only go so far in protecting you and your family. For something as important as life insurance you should seek professional help. They will not only advise you on the right amount of cover, but also steer you clear of the wrong choices and keep you focused on what is most important — protecting your family.

Northward Blog

Our goal is to inform and educate you on all things finance. To help you achieve your goals. We are Northward Financial Planners.

Northward Financial Planners

Written by

We aim to bring awareness, discipline & direction to your finances.

Northward Blog

Our goal is to inform and educate you on all things finance. To help you achieve your goals. We are Northward Financial Planners.

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