Avoid These Common Insurance Planning Mistakes

Usually misunderstood, often mis-sold and rarely bought for the right reasons, insurance nevertheless remains the cornerstone of a robust financial plan. Make sure you aren’t committing these all too common mistakes with respect to your own Insurance portfolio.

Motor

Do you own a vehicle? If yes, keeping your motor insurance policy up to date is critically important. Not only is it illegal to ply a vehicle without having the basic third-party liability insurance in place, having adequate own-damage coverage can also save you from burning a hole in your pocket in the event that your vehicle gets banged up. Many car owners end up making the mistake of reducing their vehicle’s IDV to the bare minimum allowable amount, in an effort to save a few hundred rupees. However, this would be a grave mistake, as it defeats the very purpose of having own-damage cover in place. So is the mistake of not taking up a zero dep add on which is allowed by most insurers during the first five years of your policy. When it comes to motor insurance, avoid the trap of being penny wise, pound foolish. Cover your car adequately so that you’re well protected in the event of an accident that requires heavy repair expenses. Also, make sure you don’t rush in to make a claim for small amounts of money. Doing so may void your co-claim bonus and cost you more than your saved amount in incremental premiums next year!

Health

We find a few common mistakes being repeated when it comes to Health Insurance. First, there are many instances in which people purchase Health Insurance simply to ensure that they don’t have to pay for a planned surgery from their pocket. However, this rarely works because insurers have checks and balances in place to ensure that they don’t have to reimburse you for planned surgeries. Most insurers have a two to four year waiting period for surgeries that typically qualify as ‘planned’ (for instance, a hysterectomy). So, make sure you buy health insurance for the right reason: that is, to take care of your expenditures in case of an unforeseen medical emergency (the key word here being ‘unforeseen’).  Second, we find people ignoring the need for Health Insurance simply because they have a company group cover in place. It happens all too often that the quantum of coverage proves inadequate, or various clauses such as capping or co-payment apply to the company provided coverages. Also, many people have retired from their companies only to find themselves ineligible for taking up Health Insurance due to a pre existing medical condition such as diabetes! Be responsible and take an independent Health Cover regardless of your company provided Mediclaim plan.

Life

OK – so this might sound like a no-brainer, but the biggest mistake you can make with respect to Life Insurance is not having an adequate quantum of Life Cover in place! Policies like traditional endowment plans and ULIP’s do precious little in terms if augmenting your actual life cover (which is ironically, the “true” purpose of Life Insurance). So, we often find many hapless people shelling premiums through their nose, only to discover that their actual death benefit coverage is nothing more than a pittance! Stop viewing Life Insurance as an investment and look at it as a pure risk transfer tool. Make sure you’ve got a cumulative cover that’s at least ten times your annual, post tax income.