Term insurance functions like a financial buffer for your family’s financial security and protection, especially if something untoward were to happen to you. For maximum benefits, avoid the following mistakes and carefully pick the correct term plan aligned to your exact requirements:
It is extremely important to make full and true disclosures while making a term insurance plan application, even if this leads to a higher premium and even if the policy term is short. If an important health disorder is not disclosed in the application, and if something goes wrong and the cause of the policyholder’s death is traced to that undisclosed health condition, the insurer may most likely dispute the benefit payout and ultimately even refuse to pay altogether, rendering the policy null and void. Naturally, the beneficiaries will receive nothing.
As in case of health insurance, it is not advisable to depend completely on group life cover even in case of term insurance, since the coverage is rarely enough. Group life covers offered by employers are usually just 2-5 times employees’ annual income, which is not too high.
Opting for a Shorter Tenure
A huge mistake people make while buying term insurance is that to pay lesser premiums, they take cheaper plans or shorter terms. Unfortunately, this costs more in the long term. For instance, if you purchase a 10-year term plan when you are 25 years old, then at 35, you will require a new plan. By then, your financial responsibilities would have increased and your insurance premium will also go up. Worse still, if your health is not good, insurance may even be denied.
Buying an Inexpensive Plan
Opting for the most inexpensive term plan is not wise – cheaper the policy, higher may be the exclusions and greater are the chances of losing out on essential features like flexibility, important riders, etc. While buying term insurance, some vital points to consider are the guarantee period’s length, convertibility rights, and the company’s financial standing, reputation, customer service and claim settlement ratio. It is wiser to purchase a term plan that is worth more even if it costs more. By comparing term insurance plans online , you may find that paying a little more can offer a range of additional benefits.
A contrast to this situation is buying too many extra riders – this pushes up the price of the term plan, sometimes even without offering the promised benefits. Always study extra riders to check if they are required.
Delaying Purchase, Getting Less Coverage
The best time to buy a term plan is when you are young and healthy, and ideally soon after you begin earning. Buying a plan early lowers the premiums and offers coverage from unforeseen risks. Besides, as you grow older, you will not have to struggle to get sizable insurance cover.
Secondly, the objective of a term plan is to assure financial security for the policyholder’s family/dependents if something unfortunate happens to the policyholder. However, many people take a lower sum assured to save on premiums, as a result of which, in case of the policyholder’s demise, the policy funds get exhausted soon, leaving the family stranded.
Ideally, a term plan’s sum insured should be minimum 8-10 times the policyholder’s yearly income. Even though this amount may not be a sure shot assurance that all the family’s financial problems will be taken care of, it does give the family time to figure out the next course of action in case of the policyholder’s demise. It is best to review the needs, age, specific requirements, and lifestyle of each member and get a term plan accordingly.
People often cancel their old term plan in a haste and buy a new plan, when they feel the former is not in line with their expectations. The interim period between purchase of a new term plan and cancelling the old one is delicate because if any problem comes up in this period, the person is left without any coverage. It is therefore advisable to get the new term plan before cancelling the earlier one.
It is also important to renew your term policy (this applies to health insurance policies too) within the stipulated timeframe mentioned in the policy, failing which you may be cash strapped in case of an emergency.
Considering a Single Insurance Company
Not comparing different plans is a huge mistake insurance buyer make. It is recommended to analyze and compare different plans offered by different insurance companies - you may find a similar plan at a lower price compared to the one offered by your previous insurer.
Online insurance web aggregators can help you understand and compare different plans and assist you in getting the best plan as per your needs and budget.
Out of habit, most insurance buyers opt for the offline mode of insurance purchase, ignoring the E-insurance option. However, online insurance purchase has grown in popularity and helps save time, effort and costs. Any reliable IRDA-approved insurance web aggregator portal can help you select the perfect term plan in sync with your requirements.
Not Understanding the Plan
Understand your plan by reading all the terms and conditions in detail – coverage, inclusions, exclusions, available discounts, etc. Clarify with your insurance provider in case of doubts. If you do not study your plan, you will not be able to tackle the situation in case any disputes arise during claim settlement.
Now, you know all the common mistakes that buyers typically commit while buying term insurance. It’s time to put the learning into practice and save yourself from making such serious mistakes when purchasing term insurance policies.