When you were a kid, you must have been told not to blindly follow other people. As you grew older, you were told to think twice before opting to do something. When adulthood hit you hard, you were told to take measured decisions. But, how religiously do you follow all this good advice? Needless to say, consequences are all too evident, soon after making the wrong decisions.
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Lakhs of people avail Life Insurance Plans, without evaluating features like premium, benefits, coverage and so on. They not only lose money availing the wrong plans, they also end up not benefiting from them. This happens because they were unaware of policy covers, exclusions and so on. Make sure you do not avail a Life Insurance Plan just for the following reasons:
1. To Save Tax:
The most common reason people avail a Life Insurance Plan is to save tax. Claiming Tax benefits should not be the main objective of availing life insurance. If saving tax is your main objective, there are better investment avenues that not only help save tax but also give good returns.
You can claim tax deductions for certain investments which qualify for the Section 80C tax benefit, up to a maximum of Rs 1.5 Lakhs a year. Examples of such investment options are PPF, 5 Year Tax Saver Deposits, Equity Linked Savings Scheme and so on. You also have the freedom to make investments as often as you want.
2. Agent has made a good impression:
Agents often lure clients by promising less paperwork and low premiums on plans. To add to this, he may also give you tips on how to save tax. You are a perfect prey to him as you are eager to invest and claim Tax deductions. How well does the agent portray himself before you! But wait; take a moment to study the plan. There’s no hurry to sign on the dotted line, it won’t disappear. Incorrect details put you at risk. Your claim can also be rejected with wrong/incorrect information. Of what use is paying the premiums?
3. Well-wisher suggests:
No doubt, well-wishers wish you well. But, the effectiveness of insurance plan varies. The needs of every person are not the same in the first place. Maybe a particular policy worked really great for your parents, friends or relatives. Some might suggest that you invest in low-yield policies like endowment plans. Others suggest you invest in something else. But, you are different from them. Your needs, income, health status are different from them. Therefore, think before you act.
4. Your agent is a relative:
An agent will first approach family, friends and relatives to sell policies. If you face such a situation, do not hesitate to say you need time to think before availing the policy. It is not an obligation to buy an insurance policy, just because your relative is an agent. Insurance is not a short-term commitment. Therefore, think before you commit.
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5. Do not mix investments and insurance:
Your agent might say that they offer certain insurance policies which have both, insurance and investment/savings benefits. Some of them can be endowment plans, money-back policies, and so on. Endowments plans give returns around 4.5 - 5.5% a year. Endowments plan do not offer adequate mortality cover
6. Guaranteed Returns:
You may get guaranteed returns from Life Insurance plans. This comes at a price. These plans invest in low return debt instruments. This is why they are able to offer guaranteed returns. You would be better off investing in PPF or even small saving schemes like NSC.
This is a silly reason to avail Life Insurance. Life Insurance is a major decision. Therefore, you shouldn’t decide whether or not to avail it, based on a negligent factor like a medical test. In fact, with a medical test, your health condition is thoroughly checked. It’s tough for the insurer to deny the claim because they were aware of your medical condition.
Be Wise, Get Rich.
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