Buying insurance: Common mistakes you can’t afford to ignore
Insurance is an essential aspect of sound financial planning, serving as a safety net in uncertain times. However, not all insurance contracts are created equal or offer genuine value. That's why we consulted industry professionals to find out what factors you should consider when evaluating life, home, and car insurance policies, and what pitfalls you should be cautious of.
When it comes to life insurance, it is important to adopt a strategy based on individual needs.
, recently wrote a blog post discussing the importance of financial literacy. He emphasizes the need for individuals to have a good understanding of financial concepts in order to make informed decisions and build wealth. Connor explains that financial literacy goes beyond simply understanding basic finances; it also involves knowing how to manage debt, invest wisely, and protect against financial risks. He provides examples of how financial illiteracy can lead to poor financial decisions and negatively impact individuals' lives. Connor concludes by urging readers to take responsibility for their own financial education and seek out resources, such as books, courses, or professional advice, to improve their financial literacy.
Rupert J Connor, a Partner at Abacus Financial Consultants based in Dubai, suggests that assessing your financial responsibilities and contributions is an effective method to determine if life insurance is necessary. Furthermore, it is essential to take into account your age and financial capabilities before deciding to enroll in a life insurance plan.
James McMullan, a seasoned Financial Planner at Seven International, elucidates that individuals usually delay obtaining insurance until they reach an advanced age. However, such a course of action is not prudent. McMullan points out that insurance policies are more affordable when acquired at a younger age due to one's better state of health.
James McMullan, Head Financial Advisor, Seven Global
In addition to this, there are individuals who fail to recognize the significance of obtaining critical illness coverage until it becomes too late. "They overlook the fact that medical insurance solely covers treatment expenses and does not compensate for the loss of income," he explains.
Prior to finalizing the agreement, it is crucial to thoroughly peruse the terms and conditions to gain an in-depth understanding of the policy's scope and the circumstances under which it becomes invalid. Additionally, it is essential to grasp the procedures involved in money transfer and the time frame associated with it.
Rakesh Shirke, a highly experienced professional at Metlife UAE,
According to Rakesh Shirke, a highly experienced advisor from Metlife UAE, expats should consider inquiring about the fate of their insurance policies if they were to abruptly leave the country. It's important to know if they have the option to take it along or continue paying the premiums in their home country.
According to Shirke, it is equally crucial for the beneficiaries to be aware of the presence of an insurance policy and understand the outcomes that may arise if the conditions are fulfilled.
Neeraj Gupta, Chief Executive Officer at Policybazaar.ae
Neeraj Gupta, the Chief Executive Officer of Policybazaar.ae, cautions individuals that if they fail to designate or maintain their beneficiaries, their insurance policy might not distribute funds according to their desired plans.
Auto insurance is an agreement that provides protection for your car and the people inside it in case of any harm. However, Gupta clarifies that not all car insurance plans are identical.
When it comes to purchasing the bare minimum compulsory protection, it is crucial to assess the level of risk, necessity, and extent of coverage.
"Many nations enforce a mandatory minimum level of liability coverage for drivers. Nonetheless, this might not suffice to meet the entire expenses caused by a severe accident. It is vital to acquire sufficient coverage that safeguards both your personal well-being and your possessions," he advises.
Afterward, Gupta suggests assessing the kind of insurance policy required and subsequently conducting a thorough search. "Examine quotes offered by various insurers and seek out potential discounts and rewards that have the potential to reduce your premium costs," Gupta further advises.
Ultimately, make sure to carefully review the terms and conditions to avoid any unexpected surprises when the opportunity to file an insurance claim presents itself.
Home insurance is equally essential as it is challenging to ascertain, considering it demands an unbiased assessment of your possessions and their financial worth.
Experts caution against either over-insuring or undervaluing your house when it comes to insurance. According to Gupta, underestimating the value of your home can result in a significant shortfall in insurance coverage should a catastrophe occur. On the other hand, over-insuring your home can lead to unnecessary premium payments.
It is equally important to be aware of both the inclusions and exclusions of your plan. It is beneficial to have a detailed list of items that you possess while lodging a claim.
"It is advisable to create a comprehensive inventory of all the belongings in your household along with their approximate worth. Additionally, capturing photos or shooting videos of these items and retaining their receipts or appraisals, particularly for valuable possessions, would be beneficial. This practice will assist you in determining the appropriate coverage required for your personal property and simplify the process of claiming insurance in cases of damage or theft," he suggests.
Avoid the error of neglecting to raise your deductible. This refers to the sum of money you must pay before your insurance coverage starts. The greater your deductible, the lower your monthly cost. Nevertheless, numerous individuals opt for a low deductible to avoid upfront expenses in the event of a claim. "This could prove to be a misjudgment, since you may ultimately end up spending more on premiums than what you would save on claims," advises Gupta.
