The seven common mistakes parents make when buying insurance, and how to avoid them

As parents, we want the very best for our children. We often go to great lengths to give our children nothing but the best. While buying insurance is definitely the right thing to do, the problem lies in parents buying the inappropriate amount or inappropriate types of insurance. For some parents, the fact that they have already bought insurance policies lulls them into a false sense of security. Only at the point of claim, did they realise the coverage is insufficient. Here are some common insurance mistakes made by parents. If you want to protect your children's interests, avoid them!

1. Give the wrong emphasis

For many parents, one of the first things they do when their baby arrives is to buy the child an education insurance policy. Education is the key to your children's future. Hence, it is only wise that you take steps to secure funds for your children's education. But it is even more important not to neglect another aspect. That is to buy insurance to provide for your children's day-to-day living expenses should you or your spouse were to pass on tomorrow. Do not neglect life insurance that protects your children financially from life's tragedies.

2. Insure the wrong life

Yes, we need life insurance to protect our children. But whose life should you insure? There is really no necessity to insure against your children's life. His or her death will have no impact on you financially. However, if you or your spouse were to die prematurely, your children and the surviving partner will need money to maintain the lifestyle that your family is used to. You should be insuring either yourself or your spouse, or both lives if both of you are working. Should any of you die, the insurance payout can replace the lost income.

3. Insure for too little

If you or your spouse were to pass on tomorrow, how much would your children need so that they can still get the best in life? With today's high cost of living, $50,000 can probably stretch over two years. You will probably need a lot more insurance coverage than $50,000.

4. Buy the wrong type of insurance

"I don't have enough money to buy so much insurance," many parents lament. The mistake parents make is that they try to meet all their insurance needs with whole life insurance policies instead of making use of the low-cost term policies.

Whole life insurance is a lot more expensive because it gives you some returns on your insurance premium. Some people see it as a form of disciplined savings or an investment, as they can reap the monetary rewards if nothing untoward happens.

Term insurance gives only protection. You do no get any returns from buying term policy. Thus, term policies are a lot more affordable. Both types of insurance have their merits, and serve different people with different needs. However, if you have limited budget but need high coverage, you should consider term policies. A term policy can cost as low as $1.35 a day* for a $500,000 insurance coverage.

*Cost is based on male, age 30, standard life and a five-year renewable and convertible term plan.

To further stretch your insurance dollar, you can tag on supplementary riders to your term policy. They extend the scope of coverage at low cost. Supplementary riders such as critical illness, personal accident, career and hospitalization offer insurance coverage for different scenarios in addition to death.

5. Overlook Insurance for your career

When one talks about insurance, one usually think about death. Have you thought about what happens if either you or your spouse can no longer work? There are many cases of young, upwardly mobile executives and professionals whose career come to an end involuntarily. A teacher, who can no longer teach due to depression, a production manager who has to stop work because of severe back pain…The list goes on. If you or your spouse has to stop work, a source of income will be lost, and your children will be affected. Insure your ability to work and your ability to pursue your existing career. This is one area that many parents overlook.

6. Neglect insurance for critical illness

We all agree that dreaded diseases cause much pain and distress. Besides the physical and emotional pain, you may suffer financially trying to cope with the hefty medical bills. It is therefore critical not to neglect insurance for critical illnesses; otherwise medical expenses can wipe out your savings. How about your children? What if one of them falls seriously ill? A serious or chronic illness can deplete your savings. Don't overlook critical illnesses and medical insurance for your whole family.

7. Omit insurance for terminal illness

One of the worst things that can happen is that your doctor tells you that you only have a few more months to live. Money cannot buy you more time, but money can help you fulfill some of your last wishes. Make use of terminal illness insurance coverage to make the best of the final lap of your life.

Indeed, parenthood comes with a mixed bag of joy, worries and responsibilities. You want the best for your children. A well-thought-out insurance plan ensures that your children have the means to carry on living the way you want them to when life's nasty surprises strike. Plan it right and avoid the mistakes that may turn out to be costly.

Disclaimer:

Buying a life insurance policy is a long term commitment. An early termination of the policy usually involves high cost and the surrender value payable (if any) may be less than the total premiums paid. The above is not intended as an offer or recommendation to the purchase of the product. The above is for general information only and does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You may wish to seek advice from a financial adviser before making a commitment to purchase the product. In the event that you choose not to seek advice from a financial adviser, you should consider carefully whether the product is suitable for you.


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