{"id":3741,"date":"2023-03-24T10:08:10","date_gmt":"2023-03-24T10:08:10","guid":{"rendered":"https:\/\/1finance.co.in\/magazine\/?post_type=blog&p=3741"},"modified":"2025-08-02T14:13:21","modified_gmt":"2025-08-02T08:43:21","slug":"5-mistakes-to-avoid-while-choosing-your-life-insurance-policy","status":"publish","type":"blog","link":"https:\/\/1finance.co.in\/1f-dashboard\/blog\/5-mistakes-to-avoid-while-choosing-your-life-insurance-policy\/","title":{"rendered":"5 Mistakes to Avoid While Choosing Your Life Insurance Policy"},"content":{"rendered":"

Like most other financial products in India, life insurance is aggressively sold by agents who might be more concerned about their own agenda than your needs. As a financial planner, I\u2019ve observed some common mistakes people tend to make when selecting a life insurance policy. These mistakes are often made both knowingly and unknowingly. I recommend buying term life insurance at a younger age, so you pay less premium while also securing your family\u2019s financial future. Here are the errors in judgement to watch out for.\u00a0\u00a0<\/span><\/p>\n

Having an Excessive Policy Term<\/h2>\n

I\u2019ve come across clients who want insurance coverage for as long as possible \u2014 sometimes till the age of 85 or 99 years. The only life insurance you need is term life insurance to support your family in case of your untimely death. If you live a long life, beyond the period covered by your policy term, the odds are that you will have the capacity to create sufficient wealth for your dependents, and some of your dependents might even become financially independent in that duration. When you buy a term plan for a longer period, the premium you pay is also correspondingly higher and there\u2019s a big chance that the sum insured won\u2019t match up to the rise in inflation over that period. Generally, you need term life insurance coverage only till the age you attain financial freedom and fulfill all your financial obligations, or until retirement age.<\/span><\/p>\n

Buying a Policy with Return of Premium<\/h2>\n

The typical mentality that investing in a product should give us compounding monetary returns does not apply to term life insurance. Instead, this insurance should offer you peace of mind and financial security. Opting for a \u2018Return of Premium\u2019 (ROP) rider with your insurance policy increases the premium you pay, and still may not offer as much security as a policy without ROP. Everything is not meant for earning returns \u2014 some financial products are also for protection. You don\u2019t think twice about buying car insurance \u2014 so why should you procrastinate or delay the decision of buying a life insurance policy, or needlessly complicate matters by buying a policy with ROP?\u00a0<\/span><\/p>\n

Mixing Investments with Insurance<\/h2>\n

There are two types of investment plans under life insurance \u2014 traditional and market-linked. If you invest in a traditional plan like an endowment or whole life policy, it\u2019s important to continue until it reaches maturity \u2014 and you earn 4\u20136% returns. If you invest in a unit-linked insurance plan, you need to invest for a minimum of 5 years, as per the mandate of Insurance Regulatory and Development Authority of India (IRDAI). In this case, you will see good returns only after 7\u201310 years of holding the policy. Mixing insurance and investments dilutes the effect of both. Your life insurance should ideally be in the form of term life insurance and be separate from your investments, which may be mutual funds, direct equity, a provident fund, etc. \u2014 as both play different roles in your financial plan.<\/span><\/p>\n

Buying Life Insurance without Riders<\/h2>\n

If you aren\u2019t well-versed with insurance or don\u2019t do your research, you could end up buying a policy without riders. Life insurance comes with an option to add riders like a waiver of premium due to accidental disability or critical illness, income benefit due to disability, etc. A rider doesn\u2019t cost much, but people tend to ignore its worth.\u00a0<\/span><\/p>\n

For instance, the critical illness rider ensures that the insured gets the sum insured under the rider upon diagnosis. Besides, if you buy a standalone critical illness policy under your health insurance, your premium would rise with age and product revisions. On the other hand, if you add it as a rider to your term insurance policy, the premium will largely stay the same over the course of the policy, which is especially beneficial if you buy the policy at a young age when the premium is low.<\/span><\/p>\n

Having an Inadequate Sum Insured<\/h2>\n

When calculating the sum insured, people generally don\u2019t consider inflation or events like marriage, having children, buying a house on loan, etc., which have a big financial impact. This human life calculation plays a bigger role in arriving at the correct sum insured. You need to have the right amount of sum insured to safeguard your family\u2019s interests and cover all responsibilities, including major life events like getting married, having children, buying a house on loan, and so on, which have a bigger financial impact.\u00a0<\/span><\/p>\n

Nisha Sanghavi<\/span><\/i><\/a> is <\/span><\/i>part of the <\/span><\/i>1 Finance Advisory Committee for Qualified Financial Advisors \u2014 Mumbai Chapter.<\/span><\/i><\/p>\n","protected":false},"excerpt":{"rendered":"

Like most other financial products in India, life insurance is aggressively sold by agents who might be more concerned about their own agenda than your needs. As a financial planner, I\u2019ve observed some common mistakes people tend to make when selecting a life insurance policy. These mistakes are often made both knowingly and unknowingly. I […]<\/p>\n","protected":false},"featured_media":4825,"comment_status":"closed","ping_status":"closed","template":"","meta":{"_acf_changed":false,"_updated_date":""},"blog-category":[277],"acf":[],"yoast_head":"\n5 Mistakes to Avoid While Choosing Your Life Insurance Policy<\/title>\n<meta name=\"description\" content=\"Explore insightful articles on finance, investments, and money management on our blog. 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