Buy enough insurance. Keep it simple.
Buying insurance is no easy job. The maze of products that have been designed by insurance companies have made decision making a nightmare. Most products are sold to you with e devil hidden in the fine print. The hard sell by agents make it hard to judge the truth. Worse, they ensure that you see the positives and hide the negatives cleverly. In recent years, investors have got fooled more by insurance products than by any other investment.
The problem really starts when investors seek to use the insurance route to investments. Traditionally, insurance was about ensuring that those who depend on you get enough in case something happens to you. Insurance was to provide for them if you were unable to do so due to causes like death or disability. These products were cheap, affordable and essentially for a specific term. Importantly, they simply did one job. They underwrote an eventuality.
But, insurance companies have now started selling you insurance policies bundled with all your other investment needs. You have products that combine equities, fixed return and even more along with insurance. They call them ULIPs, money back, whole life and more. What really happens when you buy these products is they cost you more than plain Term insurance. The insurance industry also locks you into investment plans for longer durations with little flexibility to exit them. Buying too much of these products delivers a double whammy to your investment goals.
You pay more costs when they bundle investments and insurance. Importantly, they loose financial flexibility. The outcome is you spend a painfully long period investing which result in very ordinary returns. Investors must buy term insurance to the extent required and simply stop at that. Investing and insurance should be kept in separate air – tight financial compartments. Do just what think is enough and stop at that.