People are often unaware of the best route to buy a term insurance plan and hence get stuck with a policy not aligned with their requirements. Policyholders may also end up incurring financial losses due to mistakes/misinformation related to the policy purchase. Therefore, it is important to be extremely careful while purchasing a term plan.
Let’s take a look at most common mistakes people make while purchasing term insurance plan and understand how to avoid them:
Purchasing Insufficient Cover
A term plan is bought with the intention that if something happens to the policyholder, the family can continue leading a comfortable life. However, if the sum assured is inadequate, the policy funds will not last long. In a term plan, the sum insured should ideally be at least 10 times of the policyholder’s annual income. Although this does not guarantee that all financial issues of the family will be taken care of, it provides time for the family to decide their next course of action in the breadwinner’s absence.
Being young and healthy is inversely proportional to the urgency of buying insurance. Ironically, the best time to invest in a term plan is when you are young and healthy – ideally, as soon as you start earning. It is advisable not to procrastinate because buying a plan early not only lowers the premiums but also provides coverage for unforeseen risks. Therefore, with progressing age, you do not need to struggle to get sufficient insurance cover in times of emergency.
Taking Shorter Terms
A major problem with term life insurance is that in an attempt to save money, people usually opt for cheap plans or shorter terms to pay lesser premiums. This ends up costing them more in the long run. This is a common term plan buying mistake.
To illustrate, if one buys a policy at the age of 24 for a 10-year term, at the age of 34 years, the person will need a new plan. By this time, the premium will shoot up and the person will have additional responsibilities as well. In the worst-case scenario, if the person’s health condition is not good, the insurance may be denied altogether. Simply put, a short-term insurance coverage could be rendered useless in the actual time of need when one’s financial responsibilities increase. The wisest thing is to get coverage for the maximum term available under the plan.
Another mistake while buying term plan is incomplete disclosures. Despite the short policy term, it is wise to make true and full disclosures on a term life insurance application, even if doing so translates to paying a higher premium. For instance, if a five-year policy is purchased, one may assume that any negative health condition is unlikely to manifest in such a short period. However, in the event that something goes awry and the cause of death is traced to a health factor that is not disclosed in the application, the insurance company may contest the benefit payment and ultimately refuse to pay, declaring the policy null and void. As a result, the beneficiaries will be left with nothing.
Insurance companies sometimes incorporate too many riders into a term policy. These additional riders may make even an otherwise excellent term plan too expensive without even offering the concurrent benefits in return. Therefore, it is, wise to scrutinize these extra riders and check if they are actually needed. For instance, a feature like critical illness insurance cover can be availed in a more economical way than having it as an add-on in a term policy.
Ruling Out the E-Insurance Option
People are so used to traditional offline insurance companies that the option of trying e-insurance is often ruled out. However, online insurance has seen rapid growth and become a great option to save time, effort and money. With the assistance of a reliable IRDA-approved insurance web aggregator portal, a right plan can be chosen in harmony with one’s specific needs. Ignoring e-insurance is another term plan buying mistake.
Not Looking Beyond One Insurance Company
People tend to buy a term insurance plan from the company they have known the longest. However, comparing it various other insurances companies may actually help get similar or even a better plan at a lower price. Here again, one can seek assistance from online insurance web aggregators to help draw comparisons between different plans offered by different insurance companies.
Getting Misled with Low Premium Quotes
Sometimes companies quote artificially low rates for term insurance policies to win business. What customers are unaware of is that these low rates are the outcome of numerous exclusions. Therefore, instead of choosing the lowest quotes for a term insurance plan, look for a reputed insurance company who can arrange a policy that will be the closest to the original quotes with no loopholes or hidden costs.
Shifting Without Thought
It often happens that on realizing that a term insurance plan is not going to work for them, people hastily cancel the old plan and buy a new one. However, the interim period between the cancellation of an old policy and purchase a new one is extremely risky – if something untoward happens during this time, the person is left with no coverage. This is a common term plan buying mistake. It is wise to purchase a new plan before cancelling the previous one in order to remain covered at all times.
Not Studying the Plan
It is imperative that one thoroughly understands the term insurance plan being considered. Gathering all the relevant information (especially coverage and related options), taking time to properly read the terms and conditions, checking about available discounts etc. are non-negotiable.
By now you must have understood how to avoid mistakes in term plan buying. You can now make a smart choice when it comes to buying the best term insurance plan, which can prove to be an asset for you and your family.