1) Scant Research
The policy’s cost (premium) and the insurance company’s claim settlement ratio are the two main factors on which people usually base life insurance purchase, mainly because this kind of insurance is a straightforward product with more or less similar features. While buying life insurance online, it is imperative to thoroughly research, evaluate, and compare various plans offered by different companies and those listed on aggregators’ sites too, before zeroing in on the most suitable and cost-effective policy. This will ensure you do not end up settling for an average insurance plan, thereby avoiding one of the major mistakes while buying life insurance online.
2) Information Inaccuracy
Whether online or offline insurance policy purchase, the first step is filling up the policy application form. When filling up the application form while buying life insurance online, you do not have an agent to guide you and oversee the accuracy and correctness of your details. You therefore need to be extremely careful and ensure all the details entered are accurate and correct. During claim settlement, the insurance company could outright reject a claim if it comes to light that key information provided is incorrect, or has been deliberately misstated or withheld by the policyholder – this would be tantamount to suppression of key facts.
Disclose facts honestly about yours and your family’s medical history, and make a clear mention about your lifestyle and social habits. Wrong and incomplete information could lead to the insurance company denying insurance completely, or in a worst-case scenario, there may even be fraud allegations if the policyholder has lied about or hidden key facts.
It is crucial for you to disclose all facts correctly, failing which your dependants will have a difficult time handling the claim when the time comes. Moreover, since it is an online policy, they cannot even get an agent’s support to fight their case. This can be one of the significant mistakes while buying life insurance online and should be avoided.
3) Too Large a Cover, Too Long a Tenure
The popularity of online insurance policies is rooted in their low costs/premiums. However, this very advantage can ironically become the biggest disadvantage sometimes – looking at the low premium rates, buyers may end up opting for a much larger cover than they actually require. Therefore, the extra premium paid becomes a waste of money directed towards something that is not really necessary. Avoid letting low premiums guide your decision while buying an insurance policy. Assess your exact needs, your budget, your asset-liability situation, and then decide on the level of cover in alignment with all the influencing factors.
Another common mistake while online term plan is taking a cover for a very long tenure, sometimes even extending to post retirement years. It is better not to take a policy that stretches beyond your earning years, as this will cause unnecessary financial strain.
4) Too Small a Cover, Too Short a Term
In contrast to the above mistake is taking inadequate cover for too short a tenure. While buying the insurance policy, you may feel that a certain life cover amount will suffice at the moment, however, even a nominal inflation of 5-6% can whittle down the real usable value of the cover by almost 50% over a ten-year period. It is therefore wise to purchase a large enough cover, which factors in inflation in a practical and comfortable way.
Another one of the mistakes while buying life insurance online is to buy an insurance cover for too short a term. If the policy you have purchased ceases when you step into your 40s, it serves no real purpose, as it means that you remain insured during the low-risk and healthier years of your life, but are not insured when your liabilities and health risks are the highest. Adding to the complication is the fact that the cost of a fresh insurance cover is directly proportional to a person’s age – higher the age, higher the cost, because health risks increase with progressing age. And that is not where it ends – in the unfortunate event that you develop a serious medical condition, you may even be denied insurance altogether.