Pandemic had us all scared in so many ways. While this pandemic has affected people lives both physically and financially, having a term insurance plan has become a priority for many. After Covid-19, people have become more aware of maintaining adequate financial protection to secure the future of their family. People have seen the worst during this pandemic, and so, individuals especially those who are in their late 20s or early 30s have started buying term insurance plans.
However, with an extensive range of term insurance plan available in the market, buyers often get confused and end up buying the wrong plan. Here are some of the mistakes that insurance buyers can avoid while buying a term insurance plan.
Buying Low life Cover Amount
The basic rule of investing in a term insurance plan is the “10x rule.” According to this rule, the sum assured should be at least 10 times the policyholder's annual income. Since, it seems like a huge amount, this leads to miscalculation of their future requirements and thus people end up with a low life cover amount. This is because with the growing inflation rate the lower coverage amount one buys today may not be sufficient enough to take care of the future financial needs of the family. With a higher sum assured amount, an individual can ensure to have the right financial coverage for their family in the long-term.
Opting for Limited Tenure
Opting for a limited tenure plan is the major mistake made by a newbie. It is because short term plans look more attractive due to cheap premiums; however, they will never fulfil the outcome in the long run. For example, Let’s say, Shruti is 28 years old and she buys a term insurance plan with a tenure of 10 years, her policy will get matured when she will be 38 and by that time she will new responsibilities. In this case, Shruti will have to buy another policy which will burden her financially. If Shruti chooses to buy a 40-year term plan then it will be more financially favourable for her.
Overlooking Riders or Adding too Many Riders
Riders mean additional coverage benefits of the plan. They can be added to the base premium of the term plan policy at an affordable rate. This way when you buy a term plan with additional riders, it increases the scope of coverage. To avoid paying extra, people make the mistake of not taking advantage of rides at a lower rate.
Sometimes the opposite happens, insurance companies offer too many riders with a term policy which makes the entire premium slightly unaffordable and less profitable for a policyholder. It is always advised to opt for riders considering your requirements as well as precisely calculate the overall term plan cover amount to avail optimum benefits.
Not Making an Informed Decision
When you are supposed to buy a term insurance plan with a huge premium amount it is advised to compare the plans provided by several different insurance companies. This would help you make an informed decision. For instance, some insurance companies offer a choice to your family to receive a portion of the sum assured in a lump-sum amount and the balance in regular instalments. Comparing the plans can help you avail optimum benefits at your budget or even at a lower price.
Delay in Buying the Term Insurance Plan
It is always advised not to procrastinate buying the term insurance plan. You will reap what you will sow. To be honest, the premium that you will pay at a young age will be far less compared to what you will pay later in life. It is because, at younger age buying a term insurance plan is affordable, mainly so, as there are no bigger financial responsibilities. Once a person gets busy in life, plans a marriage, or buys a home, it becomes quite difficult to manage everything all together.
A financially secure future might not be on your to-do list at present; however, becoming more financially wise and sound at a young age will never hurt anybody.
Underestimating Online Purchase
Some people still go by the traditional ways of buying a term insurance policy and this changes the whole game. The online process of policy purchase is not only easy but it is also hassle-free. Moreover, it saves money and time. By purchasing the policy online, one gets the added advantage to compare various plans online and choose the best plan as per their requirement and lower the premiuim rate.
Treating Insurance as an Investment
Not to forget, buying a term insurance plan is majorly a protection tool for you. It does offer tax benefits but at the same time, it is not restricted to being only an investment. This is merely a misinterpretation. It is because the main objective of buying a term insurance plan is to have a financially secure future for your family in your absence.
Not Sharing Correct Medical Information
Insurance plans offer various financial benefits at the time of maturity or in times of uncalled help. Hiding any relevant information or not disclosing proper information can lead to 100% losses at your end. You must share everything with the insurer. It is inevitable to inform the insurer about your income and health along with your family’s medical condition. This could be heart-wrenching for your grieving family and can lead to a severe financial crisis. To avoid this distress, one must always disclose the present health condition while buying a term insurance plan. Initially, this can result in a lower premium but in future, it would not let your family face a severe crisis.
Impulsively Switching Plans
This is a result of not comparing the term insurance plans among various other insurance companies. Once a policyholder realizes that the current policy is not serving its purpose or not beneficial to them, they tend to make another mistake of switching the whole plan. The impulsive decision of cancelling the old plan and buying a new one creates a huge hole in the pocket and shakes your entire financial budget of the present time.
In case, if you’d ever find yourself stuck with a non-beneficial policy, first, always compare plans and then buy a new plan before cancelling the previous one to remain financially covered at all times.
The unfortunate times that your family might experience in your absence can be less severe with financial aid. It is indeed a wise decision to ensure that you are with your loved ones at every stage in life. Also, make sure to avoid above mentioned mistakes while buying a term insurance plan.