Drawbacks of Life Insurance
Life insurance has its pros and cons. The disadvantages of opting life insurance are:
- Complexity of contract: The insurance policy is a detailed document containing various terms and conditions, which a layman might not understand; due to this he might buy a policy at unfavourable terms.
- Wastage of resources: An individual has to pay hefty sums as premiums for the policy, but if he outlives his policy, he might not be able to get anything back.
- It can be expensive for the old-aged people: Purchasing life insurances for old-aged citizens could be a logical thing to do when you are young because the premium for young buyers is pretty affordable. Generally, the premium amount of life insurance is determined by the individual's personal medical condition, the family’s medical condition, and the individual's age. However, as you grow older, if you are experiencing some illness, or having a history of bad medical condition in the family, the insurance company will consider you to be a risky buyer. To decrease the risk, they'll charge higher premiums. Thus, if you are old or have chronic diseases, although life insurance would be benefiting for your loved one, but it will add extra burden on your expenses.
- Life insurance returns are not significant: Some life insurances such as whole life insurance provide the dual benefit of investment-cum-protection. Its cash-value component is indeed a wise way to save money for the future needs and provide coverage for the family after your demise. However, bear in mind that the returns offered on such investment are lower than other investment tools. It will be the wiser thing to invest money in a term insurance plan and in other investment tools to increase your possibilities of earning higher returns.
- Insurers may not pay the benefit: Various insurance companies at times have played up in not abiding by the contract rules. They have refused to pay the sum assured or the death benefit to the policyholder or the nominee, they use many tricks to evade paying the benefits even after the maturity, and they will cite many hidden charges or clauses just to reduce the pay-out. Thus, it's advised to carefully study the finer details of the insurance in order to pick the right company which has a positive pay-out rate.
- Exclusions: It's a fact that all life insurances do not offer comprehensive coverage; they have certain exclusions. For example, insurance might not cover the loss of life due to drug overdose or involvement in criminal/illegal activities. Thus, depending on the type of insurance purchased by you, you might have to purchase an additional rider to increase the coverage. Obtaining riders on the other hand will raise the premium amount.
