10 situations to avoid if you want the security of life insurance
PNB MetLife 22-11-2016 04:03:21 PM
One of the major goals for buying life insurance is to secure your family in your absence. Though we all try to plan our financial portfolio in the best possible way, mistakes do happen, resulting in major problems for those you want to cover.Read More
Here are 10 situations to watch out for.
- Choosing the Wrong Type of Policy
When you’re trying to choose between a permanent plan and a term plan you need to review your goals and weigh them against the costs. For example, if you only need enough coverage to pay off the house, a term policy might be best.
If you’re looking for something that will allow you to earn some returns on your investment and you don’t mind paying a little more, you may want to look into a permanent policy.
- Naming a Minor as Beneficiary
Life insurance in India doesn’t pay proceeds to minors. In the absence of a trustee or a guardian, the court will seek to appoint one, which is a costly process. Hence, it is better to set up a trust or name an adult custodian.
- Single Beneficiary
Generally people name their spouse as the only beneficiary, not realizing their spouse can predecease them. In such a case the money goes into the estate. Along with the primary beneficiary, it is advisable to name a secondary one as well as final beneficiaries.
- Open Communication
Let your beneficiaries know that you have a life insurance policy, where and how to find it. There are cases where people failed to claim the policy, because they were not aware of its existence.
- Update is Important
Regardless of what your will says, the money is going to go to the beneficiary named in the insurance contract. So in case you change your mind, you need to update the insurance company as well. Changes after major life events, such as marriage, divorce, or children, also call for an update. Keep reviewing your policy at regular intervals.
- Absence of Conditions for Money Dispersal
Naming a young adult or child as a beneficiary demands the declaration of how to use the money. The absence of it will cause a likely scenario of financial chaos. Leaving behind an unconstrained financial access can be dangerous and tempting. Hence, you should arrange for some monthly payments, instalments or an allowing limited use of money before a certain age.
- Buying Too Little Coverage to Replace Income
In order to maintain your family’s lifestyle in your absence, you should choose coverage ten to twelve times of your current income. Do not depend on the coverage that your employer is providing, especially if you are the only source of income in your family.
- Taking Too Much Time to Decide
Premiums will increase, as you get older. Therefore, it’s always better to start early. Waiting too long exposes your family and yourself to a lot of vulnerable situations.
If you develop a serious illness in the meantime, you probably will have to pay a higher premiums or be denied coverage altogether. Don’t wait to be debt-free, which is what people often do when buying life insurance.
- Partial Surrender
Tough times like an emergency or financial crisis always require funds, often resulting in the partial or full surrendering of a policy in order to direct the funds elsewhere. Try and avoid this practice and opt for other sources, such as taking a loan to deal with that emergency.
- Underestimating your Insurance Needs
When deciding on the death benefit amount, you will need to consider certain crucial factors. These include overall health, life expectancy, your income, your age, pension plans as well as your debts and your assets. Other factor to be considered is a non-working spouse, as you will need enough insurance to provide for your family financially in the long-term