Insurance is a simple concept at its core. Say you envision a loss or an expense of $100 due to some event. That event need not necessarily happen, but it could happen, and you wish to secure yourself in case that event actually happens. The insurance company will assess the chances of that event actually happening and give you a figure per month or per year, which they call premium. For a coverage of, say $100, the annual premium could be, say, $10 per annum. You keep on paying $10 a year until the event happens, and once the event happens, you get $100.
The ‘event’ that is talked about here could be anything – a person’s death, a person’s hospitalization, a car accident, a house getting burned down, and household goods getting stolen, among others.
Common mistakes people make while taking life insurance
Let us examine one example of life insurance, to understand the common mistakes people make while taking insurance. What is life insurance? It is an insurance policy, wherein the insurer pays a pre-agreed amount to the family of the person whose life is being insured, in the event of his death.
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- Not having life insurance
The first and most basic mistake many people make is not buying life insurance. When a person passes away, the void can never be filled, but the money he/she used to earn will be even more difficult to account for. Life insurance coverage can at least ensure that the family left behind gets a lump sum amount of money to compensate for the sudden dip in income. - Having many life insurance policies
Having too many life insurance policies for one person is also a mistake that some people make. They have to struggle every year to be able to pay the annual premium for all those policies. After someone dies, the insurance policies should be able to ensure that the family he/she leaves behind should be able to enjoy a reasonable and respectable life. However, if one person has too many policies, then the premiums can sometimes stop him from carrying out the other responsibilities while he is alive. Instead of wondering whether you can have more than one life insurance policy and taking several for one person, it is a better idea to take family term life insurance quotes and have a term insurance, which covers all family members. - Confusing life insurance with investment
Partially due to the mis-selling by insurance companies and banks, and partially due to lack of knowledge of the person buying insurance, many policies are bought more as an instrument for financial growth rather than life insurance. The best way to get life insurance is to get a term insurance, which is a pure life insurance. For investment, one can always look at the stock markets, real estate, or even bank instruments.
These are the three common mistakes we end up making while choosing to buy life insurance. If these things are taken care of, then the correct benefit of a good life insurance policy can be seen.
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