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5 Mistakes When We Buy Insurance

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Insurance is an important financial tool that helps us protect ourselves and our loved ones from various risks and uncertainties. However, buying insurance can be a complex and confusing process, and we may end up making some costly mistakes if we are not careful. Here are five common mistakes that we should avoid when buying insurance.

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1. Not understanding the policy

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One of the biggest mistakes we can make when buying insurance is not reading and understanding the policy document thoroughly before signing it. Insurance policies are often written in legal and technical language that can be hard to comprehend. However, it is essential to know what the policy covers and what it does not, what are the benefits and exclusions, what are the terms and conditions, what are the premiums and charges, and what are the rights and obligations of both parties.

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If we do not understand the policy, we may end up buying a wrong or inadequate policy that does not suit our needs or expectations. We may also face problems at the time of making a claim if we are unaware of the policy details. Therefore, we should always read the policy document carefully, ask questions to the insurance agent or company if we have any doubts, and seek professional advice if needed.

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2.Underestimating the coverage

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Another common mistake we can make when buying insurance is underestimating the amount of coverage we need. This can happen when we buy insurance based on price alone, without considering our actual needs and goals. For example, if we buy life insurance, we need to consider factors such as our age, income, expenses, liabilities, dependents, future plans, inflation, etc., to determine how much sum assured we need to secure our family’s financial future.

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Similarly, if we buy health insurance, we need to consider factors such as our health condition, family history, lifestyle habits, hospital network, cost of medical treatment, medical inflation, etc., to determine how much coverage we need to cover our medical expenses. If we buy inadequate coverage, we may face financial difficulties in case of an emergency or a contingency.

Statistics: According to a survey by Max Life Insurance², 62% of urban Indians are underinsured with an average life cover of only Rs 8 lakh per person. The survey also found that only 21% of term plan owners have adequate life cover of at least 10 times their annual income. Similarly,
according to a report by ICICI Lombard³, only 10% of Indians have health insurance cover of more than Rs 5 lakh per person.

3.Choosing the wrong type of policy

Another mistake we can make when buying insurance is choosing the wrong type of policy that does not match our needs and goals. There are various types of insurance policies available in the market,
such as term plans,
endowment plans,
unit-linked plans,
money-back plans,
whole life plans,
etc.,
for life insurance;
and individual plans,
family floater plans,
senior citizen plans,
critical illness plans,
etc.,
for health insurance.

Each type of policy has its own features,
benefits,
limitations,
and suitability.
For example,
term plans are pure protection plans that offer high coverage at low premiums but do not have any maturity benefit;
whereas endowment plans are savings-cum-protection plans that offer low coverage at high premiums but have a guaranteed maturity benefit.
Similarly,
individual plans cover only one person;
whereas family floater plans cover the entire family under one policy.

We should choose the type of policy that best suits our needs and goals.
For example,
if we want to buy life insurance for protection only,
we should opt for a term plan;
whereas if we want to buy life insurance for savings and protection,
we should opt for an endowment plan or a unit-linked plan.
Similarly,
if we want to buy health insurance for ourselves only,
we should opt for an individual plan;
whereas if we want to buy health insurance for our family,
we should opt for a family floater plan or a critical illness plan.

4. Misrepresenting or hiding information

Another mistake we can make when buying insurance is misrepresenting or hiding information from the insurance company at the time of filling the application form or undergoing the medical examination. This can happen when we lie about our age,
income,
health condition,
family history,
lifestyle habits,
occupation,
etc.,
to get a lower premium or a higher coverage.

5. Not reviewing or updating the policy

The last mistake we can make when buying insurance is not reviewing or updating the policy periodically. Insurance is not a one-time purchase, but a long-term commitment that requires regular monitoring and maintenance. Our needs and goals may change over time, due to various factors such as marriage, divorce, childbirth, retirement, change of income, change of health condition, etc. Therefore, we should review our policy at least once a year, or whenever there is a significant change in our life situation, to ensure that it is still relevant and adequate for our current needs and goals.

We should also update our policy if there are any changes in our personal or professional details, such as name, address, phone number, email id, nominee, bank account, etc. This will help us avoid any hassles or delays in communication, premium payment, claim settlement, etc. We should also check the performance and service quality of the insurance company and the policy regularly, and switch to a better option if we are not satisfied.

Conclusion

Buying insurance is a crucial decision that can have a lasting impact on our financial well-being. Therefore, we should avoid making these five common mistakes when buying insurance and follow some best practices such as doing proper research, comparing different options, seeking expert advice, reading the fine print, and keeping the policy documents safe. By doing so, we can ensure that we buy the right insurance policy that meets our needs and goals and gives us peace of mind.