BENGALURU: You might be regularly receiving phone calls from various companies regarding the life insurance plans. They give you various lucrative plans to buy their insurance policy. However, you have to carefully check various things to avoid any mistake while buying any life insurance plan for yourself or family members. The Economic Times notified about few mistakes that needs to be avoided so that your life insurance can become a tool for your future income.

First mistake youngster’s do is by thinking that I am young, so there is no need of buying any insurance policy. The main purpose of buying a life insurance is to assure the financial safety of your parents and dependents after your death. If you are an only earning person of the family, then the life insurance policy will act as an income replacement tool for your parents or siblings.

The policyholder will have to avoid exiting the policy before its maturity if it is not necessary. Exiting a life insurance plan few years before its maturity will not be a right decision and you will also have to bear the surrender cost. Same goes with the Unit Linked Insurance Plans (ULIPs) as early exit will lead to front-loaded charges. After buying any insurance plan, you will have to continue that plan till the maturity to get full cost-benefit of the scheme.

Some people buy multiple insurance policies or ULIPs to get more benefits from multiple plans. Policyholders will have to a pay several cost-heads, which also includes the administration charges. Therefore, the more policy you buy more charges you have to pay for the insurance agencies.

Keep yourself away from buying guaranteed insurance plans. Because to guarantee the returns the company will have to make a provision and the customer will have to bear all additional cost required for that provision. The companies providing most guaranteed plans have authority to invest money in equity markets in whatever percentage they wants and customer have no mandate to choose the fund options. To provide guaranteed returns, insurance companies invest more in debt in comparison to equities. It enables insurers to provide timely returns, but they might not be potentially as high as the equity. The high-cost involved with the returns makes the guaranteed return insurance plans not a good choice for long-term wealth accumulation.

You will have to avoid buying an inflexible plan because it may lead you to lock-in for a long term. In case you selected an insurance plan because of the less volatile returns and high maturity value, you have to pay higher premium for such insurance plans. These plans are very inflexible also as after choosing any term, you will have to pay premium regularly and any early exit from the plan will be costly.

People need to avoid buying insurance policies in the name of minor children because the mortality charges and premium are low for the minors. But as children don’t have any earning capacity, buying policy on their name makes no sense. Instead, the policy will have to be bought in the name of families earning member. The thinking of ‘cheaper plans are better’ is not good as low cost plans have no survival benefits as the protection is provided only in the chosen term. Therefore, don’t compromise with the features just for buying a cheaper plan.

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