According to Yashish Dahiya, CEO, Policybazaar.com (Etechaces Marketing and Consulting Pvt Ltd) a clear and encouraging trend is seen in the insurance market over the last 6 months, which is increasing customer awareness of products, a 5-10x rise in online comparison before purchase, and a higher correlation between requirements and product being purchased (increase in products like term assurance).
“However in general we still find that attitude towards life insurance continues to have a large element of tax savings as a motivator,” he adds.
Dahiya has cited certain mistakes which he hopes consumers will increasingly avoid with growing knowledge and discipline
1. Thinking you have enough.
It is generally agreed that everyone should have some level of life insurance, most believe that it should primarily cover tax savings and other expenses. Very few people believe life insurance should replace the income of the person who died, in order to continue to support any children and other dependent family members. The idea of having a policy that paid out seven to 10 times one's salary -- an amount that could easily make sense for someone with young children -- sounded like an attempt to sell a needlessly large policy to people. Insurance bought for Tax saving purposes or investment purposes is not enough. Many people have only the insurance that comes from their workplace policies, which is usually not enough for people who want to support dependents after their death.
2. Not Talking about it.
Life insurance is a topic people normally don’t want to think about or talk about. Though life insurance isn't required the way auto insurance is, it is morally required if you have dependents. You owe it to them to protect them from the loss of your capacity to earn an income.
3. Relying on some Thumb rules.
Traditionally, people relied on a standard "six-seven times income" rule to calculate how much insurance they needed. But that's not a useful measure, because people's situations are so different. A single person with no dependents will probably need much less insurance than someone with five young children, for example. Instead sitting down and thinking about "the things you want to protect” is just the right way. How much would it cost to support your children in the way you want? To pay for their college or pay off the home loan?
4. Ignoring your non-monetary income.
Many people, when adding up how much of their income they would need to replace, forget about the benefits that come with their jobs, such as health insurance and retirement account payments. You have a job, and your employer pays your health insurance costs, but if you died, and that subsidy disappears, your wife would have to get health insurance, so it would cost more. Life insurance, then, should pay enough money to cover the new health insurance bill.
5. Forgetting the long term.
People often lose track of how long the life insurance payout should support their children and other dependents after they die. If you have a child who's 10, in 15 years, they'll be out on their own so in that case, term coverage that will provide support for those 15 years likely makes the most sense.
6. Thinking that it's too expensive.
Many people mistakenly think life insurance is prohibitively expensive, but it's possible to find a policy that fits both your needs and your budget. Term insurance, which provides temporary insurance over a specific time period, is more affordable than permanent insurance, which lasts a lifetime. People in India use Life Insurance as an investment tool while they should be looking at managing financial risk for their dependents. But those on a tight budget tend to choose term insurance. One of our customers, a married man with one child and another on the way, decided he needed to take out Rs1.5 crores worth of term life insurance. His monthly payment, pending an assessment of his health, will cost between Rs1002 and Rs2109 per month.
7. Forgetting to pay premiums/renewing a policy.
One of the most common mistakes people make is paying the premiums on time especially for life insurance and not renewing policies for health Insurance. Both these activities are as important as making your home loan payment or paying your children’s school fees.
While the IRDA in its recent notification, effective 1st June 2009, has changed the way Health Insurance policies are renewed by providing for a 15 day grace period, in the case of life insurance it is imperative to pay premiums on time to ensure that in case of a mishap your family is adequately protected.
Even the Life Insurance Council, the industry body for all Life Insurance companies in India, which has been working towards creating adequate awareness about life insurance, has reinforced that Life Insurance is a unique asset class and needs to be incorporated in an individual’s financial plan. Source:Sakaltimes...
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