The objective of buying a life insurance policy is not only to financially safeguard your family's future when you are not around, but also to secure their future financial goals. Therefore, you should always try to avoid getting falsely trapped by an insurance agent whose sole aim is to make hefty commissions by selling you a policy which probably you don't need.
The objective of buying a life insurance policy is not only to financially safeguard your family’s future when you are not around, but also to secure their future financial goals. Therefore, you should always try to avoid getting falsely trapped by an insurance agent whose sole aim is to make hefty commissions by selling you a policy which probably you don’t need.
Here are a few traps you should be aware of while buying an insurance plan:
Showing absolute return
Never get into the trap of absolute returns, which are generally promised by relationship managers while selling an insurance plan. For example, suppose you are planning to purchase an insurance plan for a tenure of 10 years and the adviser says that by paying Rs 20000 today you will get Rs 50000 after the maturity of the plan. He also shows how you will earn a return of 150%. However, this simply means that he is showing you an absolute return. You should always ask for a CAGR return, which is the actual return you will be getting on your investment made in any product. The CAGR return in the above example is only 9.6%. Therefore, one should always ask for genuine advise before making any investment. Also, insurance is bought for safety, so why to seek return on it? If you are getting some return, that is just the survival benefit you are getting for living a healthy life after the maturity of your insurance plan. Hence, take it as a mere benefit and nothing else.
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Providing higher sum assured when it is not required
Many a time it happens that when an insurance adviser visits you, he tries to sell you a plan that has a higher sum assured. However, do you really need that much cover? The answer is no. One should always find out one’s insurance need by calculating all necessary expenses, liabilities, investments made for future financial goals, etc. and then accordingly should buy an insurance plan. Buying an insurance plan with too much of sum insured will only make a hole in your pocket. It is only the relationship manager who will benefit from the higher premium.
Investment in insurance will grow your money 10 -20 times
Any investment made in an insurance product will increase the sum assured by 10 to 20 times – right from endowment plans to term plans. Insurance plans will give you some returns on your survival after the maturity of the plan or else can give some benefits to your successor after your death, but these plans cannot give you higher returns. After all, these plans are designed to give your family only protection and help save them from financial losses in case something happens to the policyholder within the tenure of the insurance policy.
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ULIPs are only investment plans
One should not get trapped by this false statement that ULIPs are only investment plans. For those who have bought ULIPs for investment purpose should know that these plans are mainly designed to provide you protection and secondly, some portion of the plan is linked for investment purpose because of which your premium also becomes high. Therefore, if any adviser says that ULIPs are only for getting returns on your investments, then do not rely on him unless he tells you that it provides you protection benefit first. However, one should know that the investment portion linked to these plans gives good returns when invested for more than 7 years. It means that if ULIPs are linked with any of your financial goals, then that goal should have a time horizon of at least 7 years or more.
When companies try to reduce claim or go away
Sometimes some insurance companies are found avoiding honoring the valid claims of an insurer and want to go away with the procedural documentation process. This is actually a wrong practice followed by some insurance companies who actually try to fool the insured person. Therefore, always try to buy insurance from those companies who have the highest claim settlement ratios and also take a proper insurance guidance from a known adviser who can help you while making claims.
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Although today many people are more cautious while taking an insurance plan, but due to a busy schedule one tends to forget the terms and conditions of one’s insurance policy. Therefore, it is always advisable to take genuine advise from one’s adviser from time to time so that one could secure one’s future by taking the right amount of insurance as per one’s needs.