5 Financial Mistakes People Do in Buying any Life Insurance Plans

The earlier in life you start investing in term insurance policy the more benefit you can reap in the future. In today's uncertainty of life having a term insurance plan has become a necessity more than a choice. A term insurance plan provides financial protection to the family of the insured in case of any eventuality and demise of the insured person. Nowadays, as there are wide range of term insurance plans available in the market choosing the most apt plan for you becomes confusing at times.

However, the insurance seekers should check on the various aspects before buying a particular plan. In order to choose the most suitable plan it is important to estimate the total requirement of your financial liabilities. People often confuse term insurance as investment plan and there are certain mistakes that people often make while term insurance plans.

Treating Insurance as an Investment

Life insurance plans can be traditional plans likemoney-back and endowment, or market-linked plans like ULIP - unit linked insurance plan. As both types of plans have a component of insurance, so the cost of these plans involved through mortality charges. While the earlier is totally a debt product, with the prospective to generate around 5 % return, the latter is an equity market-linked product, with the prospective to provide returns according to equity market conditions.

Exiting the Policy at the Wrong Time

Whether it's a pure term insurance plan or a money back plan, endowment plan or ULIP plan, insured may want to exit any time prior the maturity of the policy due to various reasons. Exiting a pure life insurance plan when your policy is reaching the maturity period can be a bad decision as the insured will still have to pay the surrender cost. Similarly, in other plans like ULIP, exiting plan can be a wrong decision as the charges are front loaded and the insured will have to pay it in initial five years of the policy.

It is always wise to continue the policy till maturity in order to enhance the return of investment over a long period of time. The profits available in life insurance plans are structured in such a way that the insured can avail the best return of investment only when the policy completes its entire tenure.

Purchasing Too Many Policies

Be it a pure term life insurance policy or a ULIP, purchasing more than one policy can increase a lot of cost. Most of the life insurance policies have various cost-heads which comprises an administration charge (agency commission). So every time the insurance seeker buys a new policy he/she acquires this cost. This is particularly correct in the case of ULIPs. If one needs to purchase a ULIP, go for one which is flexible enough to meet the various goals at different stages of life.

Buying Policy in name of Minor- lot of people purchase policies in the name of minor children thinking that they will have to pay low mortality charges and thus the cost of the premium will also be low. But as children don't have any capacity of earning, it does not make logic to purchase term insurance in the name of children. Instead, the life insurance policy should be bought always in the name of the breadwinner of the family.

Cheapest one if the Best- Traditional term insurance plans offers high life cover at low premium cost. They provide life protection and cover the risk of dying too early in case of any eventuality of the insured person. A pure term insurance plan does not have any survival benefits. Most insurance seekers, therefore, search for the economical term insurance plan and even consider buying online term plans. While buying the plans online there are certain aspects that should be kept in mind. Term insurance plan offered online can have limited features. Moreover, the cheapest plan according to your age and desired sum assured may not have longer tenure.

By avoiding these mistakes, one can easily buy the most beneficial life insurance plan according to their own choice.