Four insurance goof-ups you shouldn't commit

Life insurance in India is sold by agents or financial advisors or consultants. According to me, they are actually sold by teachers: There is so much that we can learn from them, and mainly from their mistakes.

Examine the selling tools that they use, and check our list to find out how many of these errors we have made by listening intently to what they said.

Save taxes. Period.

Insurance -- this may surprise many of you -- is not a tax-saving tool. It is a product that helps protect your family and dependents in case of your early death. The premium that you pay may help you save taxes, but that's not its main purpose.

Calculate the amount your family depends upon from your income (if you are the sole earner), and get yourself adequate cover first.

Consider insurance as primarily a protection which will pay back big time in case of a claim. Please accept the fact that if I was to get something back on my insurance policy, it is largely coming from my own funds, and the efficacy of their deployment.

Consider insurance premium like the brakes fitted in your vehicle: they do not propel the car forward; they are put to use as a safety mechanism. The cheapest form of life insurance is risk cover, and it has its place and utility for sure.

This one takes the icing on the cake and applies to the new-found "saviour" for the industry: unit-linked policies. When you sign a contract for a 20-year insurance policy which is unit-linked, the insurance company assumes that you will pay regular premiums for the entire tenure of the policy.

The product structure is such that major costs are incurred and deducted from your premiums in the first couple of years. Mind you, they are charges that the company expects to incur over the life of the policy.

Simple math will tell you that paying for a limited period can never be a winning proposition.

Unit-linked policies need to be entered into with open eyes and a commitment to pay premiums for 12 to 15 years at least to make these policies an attractive proposition.

Life insurance is expected to replace the economic value of a person. In their formative years, your children are not expected to contribute to the household income, (far less support the family expenses).

Obviously we cannot hope to 'profit' from their demise. Apart from it being a strong, emotional selling tool for the agent, this concept needs to be discarded.

Buy the insurance policy with the child as the beneficiary, not the policy holder.

There are some other myths that need to be obliterated from one's mind.

Diversification in insurance does not mean buying one policy each of different companies from each of your seven friends who have taken this on as a profession, so that none of them is unhappy. Nor are private sector players any less safe than the older and nationalised players.