Traditionally, individuals have often considered life insurance a priority while structuring a financial portfolio. While having life insurance is very essential, it is also important that insurance be bought for the right reasons.
This article deals with four wrong reasons for which life insurance products are being bought today:
1. Treating life insurance as a savings avenue
Over the years, life insurance has been bought primarily for two reasons- tax saving and investments. Unfortunately, providing for life cover usually takes a back seat. While the 'tax saving reason' does hold good for individuals, conventional endowment type life insurance policies don't quite make for an attractive 'investment' avenue.
With a lower interest rate regime in place, the heady days of attractive and assured returns on life insurance policies are behind us. Going forward, the returns on insurance policies will depend on how well the insurance company manages its finances.
Our view is that life insurance should 'strictly' be bought for what it was always intended to do - indemnify the nominees in case of an eventuality. It is precisely for this reason that we believe that all individuals should have a term plan in their insurance portfolio, irrespective of their profile.
To take care of the investments and the 'tax-saving' element, individuals can consider investing in tax-saving mutual funds and NSC/PPF. Unit linked insurance plans (ULIPs), which can invest up to 100% of the premium in market linked instruments, is also an option, which individuals can opt for.
2. Trusting your life insurance agent/advisor completely
Before insuring yourself, ensure that you have done your homework well. Nowadays, it is 'normal' for sales pitches to be aggressive. Insurance agents many a times, sell life insurance products without adequately understanding or paying heed to the individual's profile and his actual needs.
For instance, how can one explain the absence of term plans in most individuals' life insurance portfolios in spite
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