Getting an insurance cover is key to complete financial planning. Many of us have insurance plans but only a few know the essence of having it. Some may think it’s a perfect way to save on taxes or invest. For those who don’t understand, insurance is a financial plan that seeks to spread risks to a large pool of entities. This way, you can get compensated for the occurrence of a disastrous event. To get insurance cover, you have to make monthly or annual contributions to an insurance provider. In case the predefined event fails to take place, you won’t retrieve back your money. One such common policy is life insurance. This plan seeks to cover an individual’s life in many ways. However, most people make numerous mistakes when purchasing this policy. The article below seeks to explain common life insurance mistakes.
Miscalculating insurance requirement
Most people buy their insurance plans on the basis of their agent’s plans. In addition, they will buy a cover depending on the premiums they can manage. However, this is not the right approach. Any insurance plan must take into consideration your financial position and nothing else. Making a decision depending on the products offered is a disaster in wait.
Shopping the cheapest policy
As you know, cheap is expensive. You may buy a cheap plan thinking you are saving but you are wrong. A cheap policy means the insurance firm may be unable to pay for the claim in the event of a predefined occurrence. While they can manage to pay the claim, it makes take a long and tiring process before they honor the deal. It’s advisable to use criteria such as duration and settlement ratio to find the right insurer. A good firm will always fulfill the deal on time without taking you around the circles. In addition, check for online reviews to get a rough idea of the insurance company.
Purchasing the wrong plan
Don’t take life insurance as a form of retirement planning. Remember an agent will tell you anything just to sell the cover in order to earn a commission. There is no way insurance can be an investment due to its low or imaginable returns. If you are seeking to invest your hard-earned cash, then equity can be a good place to start. A life insurance policy seeks to protect your family in case of a sudden date and therefore can never be an investment. When buying a life insurance plan, consider a term plan due to its open protection policy. In addition, its premiums are lower as compared to other plans.
Using an insurance plan for tax planning
There is a growing misconception that a life insurance cover can help save your taxes. Actually, the opposite is true. Insurance premiums are always taxable especially when they go beyond 20% of sum assured.
Withdrawing before maturity