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Term life insurance is one of the most important financial instruments when it comes to securing the future of your family. When you do financial planning, a term life insurance policy should be on the top of your list. This is because a term insurance plan provides financial coverage to you and your family for a specific period. In this plan, the beneficiary gets financial protection in case of the demise of the policyholder during the policy tenure. The plan offers a financial shield to your family against which you need to pay a fixed premium amount for a specified period.
You can easily buy term insurance plans online and they are available at a very affordable rate. At times, we tend to ignore many aspects when buying a term insurance plan and later on, regret about our decision. There are instances when customers take lesser coverage amount or the plan does not suit their requirements and as a result, they get their policy cancelled. So, here are a few mistakes you must avoid when purchasing a term plan, so that you can make an informed decision:
A term insurance plan provides a financial cushion to your family in case of your sudden demise. However, if the sum insured is inadequate, then, your family won’t be able to bear their expenses when you are not around. So, make sure that the sum assured you choose is 10 times your annual income. If you choose the right sum assured, your family’s financial well-being is taken care of.
The second common mistake we tend to commit is delaying the purchase of a term insurance plan. A common perception among people is buying a term plan when you are old, whereas, it should be bought at the right age. The earlier you buy a term plan, the more benefits you receive, and less will be your premium amount. This is because when you are young, you have a lesser chance of contracting an ailment.
We usually tend to buy term insurance plans which have a shorter policy tenure in order to save on premium amounts. This is a bad practice to follow because if the policy tenure ends, you will end up buying a new term insurance plan and you will get it at a higher cost considering your age. Let’s take an example. Suppose, you buy a term insurance plan at the age of 24 years and the policy tenure is for 10 years. At the age of 34 years, your policy will expire. Now, when you buy a new term plan, the premium might be higher because you have more responsibilities at your end. In the worst scenario, if you have an ailment at that time, you might also be denied a term insurance plan. So, it is always wise to buy a term insurance plan for a longer period, usually between 20-25 years.
Another common mistake by customers is not disclosing accurate information to the insurer. You should always inform your insurer at the time of purchase if you have any ailment/illness or about any illness in family history. It's important to understand that the insurer also wants to serve you better. If you don’t give correct personal information, your family won’t get financial protection and your policy will be made null and void. As a result, your family won’t get any benefit.
It is always prudent to consider various insurance plans when choosing a term insurance plan. Try to compare plans of various insurance companies according to their features, cost and claim settlement ratio. You can also log on to www.policybazaar.com to compare and choose the best plans for your family.
We usually cancel a term insurance plan if we aren’t satisfied with it. However, you should also know that the period between cancellation of a policy and getting a new term plan is very risky as you won’t be covered at that time. God forbid, if something unfortunate happens during this period, then your family won’t be financially protected. So, it is always suggested to buy a new term plan before cancelling the old one, so that you have a back-up.
The most common mistake made by us is buying a term insurance plan without reading the terms and conditions of the policy. You should always read all the information in the policy such as coverage amount, rider options, premium amount etc before buying the policy. Do thorough research before making the decision to buy a term plan.
So, these were a few mistakes we generally make when buying a term insurance policy. We need to be more vigilant and careful so that we take a prudent decision to secure the future of ourselves and our loved ones financially. Let’s err on the side of caution so as to have a financial umbrella safety net for our loved ones during difficult times.
07 May, 2021