Life insurance is often purchased hastily around the tax-saving deadline in March. Unfortunately, this rush leads many policyholders into suboptimal policy choices that cost thousands in extra premiums or lower returns. Here are the 5 biggest mistakes and how to fix them.
1. Missing High Sum Assured (HSA) Rebates
LIC offers substantial premium discounts for policies of ₹5 Lakh, ₹10 Lakh, and ₹25 Lakh+. For instance, on Plan 936 Jeevan Labh, choosing ₹10 Lakh Sum Assured instead of ₹4.5 Lakh unlocks a ₹1.50 per ₹1,000 SA discount on every annual premium.
2. Paying Quarterly or Monthly Without Mode Discounts
Yearly premium payment receives a 2% direct discount off tabular rates, and Half-Yearly mode receives a 1% discount. Paying monthly without NACH auto-debit often incurs extra administrative costs.
3. Skipping the Accidental Death & Disability (ADDB) Rider
For just ₹1.00 to ₹1.50 per ₹1,000 Sum Assured per year (e.g. ₹1,000/year on a ₹10 Lakh policy), the ADDB rider doubles the death payout in case of an accident and pays a 10-year monthly disability pension if disabled. It is one of the highest value-for-money add-ons available.
4. Choosing Too Short a Policy Term for Compounding
In participating endowment plans, the Final Additional Bonus (FAB) increases exponentially with policy tenures of 20 to 25+ years (often jumping from ₹20/₹1k on short terms to ₹450/₹1k on 25-year terms). Longer terms produce dramatically higher compounding returns.
5. Treating Insurance Exclusively as a Tax Saving Hack
Purchasing small policies simply to exhaust the Section 80C ₹1.5 Lakh limit often leaves families under-insured. Always calculate your real Human Life Value (HLV) to ensure your life risk coverage matches your income.