Top insurance mistakes that may hit your finances hard

Taking an adequate insurance cover before you start your investment journey is like laying a proper foundation before constructing a building.

Taking an adequate insurance cover before you start your investment journey is like laying a proper foundation before constructing a building. Like a building built without proper foundation may collapse, without having an adequate insurance cover, all your investments may get drained out.

For any financial plan, the first act of action is taking an adequate insurance cover. This is because the expenditures in case of an unfortunate occurrence of an uninsured insurable event are unpredictable, while the premium paid to take an insurance cover is predictable.

So, not just taking cover against a peril, insurance is important to protect your investments also.

However, for proper protection, you shouldn’t make mistakes in taking insurance covers.

Mistakes in Insurance

Following are some of the insurance mistakes that you should avoid:

Not having life insurance cover

If you have family members financially dependent on you, taking life insurance cover is a must for you. This is because in the absence of the breadwinner, not only will all the investments be stopped, but the financially dependent family members may find it hard to pay for essentials.

So, having an adequate life insurance cover is very important to ensure that the financial dependents maintain their standard of living after the unfortunate demise of the breadwinner.

Mixing insurance and investment

The primary aim of taking insurance is having protection against the monetary loss due to occurrence of the insurable event. However, endowment life insurance policies provide return on maturity along with the prime motive of payment of the sum assured to the nominee(s) in case of premature death of the policyholder during the term of insurance.

But it’s better not to mix insurance and investment as –

the premium amount of endowment policies are higher than term insurance policies;

rate of returns are mostly lower than the pure investment products; and you may suffer loss in case you want to surrender your policy before maturity to get the investment money.

Not reviewing and updating insurance covers

With the increase in financially dependent members, hike in income and other reasons, you may need a higher sum assured for adequate insurance cover in the changed circumstances.

So, it’s very important for you to review your insurance cover from time to time and upgrade the amount as and when needed.

Not having sufficient health insurance

Irrespective of the presence of financial dependents, you need to stay healthy. However, in case of any illness leading to hospitalisation, you may suffer huge financial loss in absence of a health insurance policy.

So, it’s better for you to realise the importance of having health insurance cover and get one as soon as possible, if not taken yet. With the increase in the cost of treatments, you should also increase the amount of the sum insured.

Not having adequate accident policy

A healthy person may meet an accident leading to injury, disability or even loss of life.

So, it’s important to take accident policy for self-protection as well as protection of financial dependents against financial losses that may arise due to an accident.

Not taking third party insurance

In case of injury or death of a person due to accident by your car, machinery, lift etc installed by you, the compensation amount may run into lakhs of rupees or even into crores, depending on the financial status of the victim.

So, it’s always better to take at least third party insurance, if you have a vehicle and/or machinery that may cause harm to any person.