Many people do not choose the appropriate policy or adequate cover when buying life insurance. The biggest mistake when taking insurance is to mistake it for investment. This is a common mistake made by many due to the fact that, in India, prior to economic liberalization there were not many investment avenues. The income tax exemption on the insurance premiums was a major factor for people choosing insurance as a means to save tax. The money back policies gained momentum during this time as people could see money being repaid to them after the policy expiration. So the insurance was thought of a bonus. Post liberalization even though there are lot of ways to invest, but still the mindset of people has not changed to a great extent. Also there is not much financial education happening in the country. As a result most of the investment advice from family, friends, relatives comes in the form of “Why don’t you buy an insurance policy?”

When buying insurance you need to consider the following
1. How many people are dependent on you?
2. How many liabilities (loans, debts) do you have?
3. After deducting your liabilities how much extra do you want for your dependents to support their current lifestyle?
4. How much cover do you already have?
5. If you have children, did you account for their educational needs, fees etc for 10 to 15 years down the line ?

I am sure that you have lot more points to add to this list, please add them in the comments for the benefit of all. I hope you think on the above lines before buying any more insurance.