As an earning member of the family, not only will you be paying off your bills and debts, but will also be the financial foundation for the other members of the family. In the event you pass away, this foundation can be affected, leaving a financial burden on the other members of your family. During this time, your family members may not have the financial ability to earn sufficient or even any funds to replicate your earnings, leaving them financially unstable.
However, with life insurance, you can offer your family the financial stability they require, in the event your death occurs. In this way, you can be well assured that your family is well taken care of, leaving you with a stress-free life. But before you opt for any of the life insurance plans, there are certain factors you need to be aware of. For one, you need to be aware of the possible mistakes that can happen when you apply for the insurance. Given below are some of them:
I don’t require insurance because I’m young: Youngsters who have just started earning may depend on their parents or siblings for the more complex financial requirements. However, the basic purpose of the life insurance is to ensure that your family members are not put in a situation where they are in a financial crunch, in the event of a death of the earning member. In this case, life insurance works as the ideal income replacement tool. You will first need to estimate the size of your financial liabilities, which has not been provided for otherwise. You will need to estimate then the shortfall in the savings in matching these requirements and adequately get a life cover. Opt for a plan that offers you a high cover at a low cost.
Treating insurance as an investment: Life insurance may be perceived as an endowment, money back offers, or market linked investments. These products have an element of insurance, with the potential to deliver returns. However, in reality, the life insurance policy will only offer you return through mortality charges. In other words, it offers a low investment chance. You only need to treat insurance as a means of financial protection over an investment product.
Exiting the policy at the wrong time: Circumstances may arise where the policyholder would want to exit the policy before the maturity is met. Exiting the insurance plans before a few years left to maturity, may not be the right decision. The reason behind is that the surrender cost will still exist, although it may be lower to the exiting charge in the initial years. Once the policy is bought, it should be continued till maturity, to optimise the cost benefits of the life insuranceplan.