4 Mistakes to Avoid While Buying a Term Insurance Policy
Many people in India have limited knowledge on how to go about buying a term insurance policy, and consequently, they commit several mistakes. In this write-up, we list down the most common mistakes and how to avoid them.
A term insurance policy ensures the financial well-being of your family even when you are not around. It is one of the simplest and most cost-effective insurance covers that you can purchase for your family. However, since there are too many plans in the market, the process of buying a term plan can be confusing, especially if you are a first-time insurance buyer.
As a term insurance buyer, you must be aware of the most common mistakes that people make so that you can avoid them.
- Buying an insufficient cover
The primary objective of buying a term insurance is to secure the financial future of your family members. However, many people miscalculate their requirements and buy a term insurance policy with a lower sum insured. In the event of your unfortunate demise, the death benefits they receive may not be enough to cover their expenses.
It is, therefore, advisable that you purchase a term insurance policy with a high sum insured that is at least eight to ten times more than your annual income. You can also buy a cover that exceeds this amount if you feel that your family may need more funds in the future.
- Choosing a short-term policy
One of the most common mistakes people make while buying term insurance plans is choosing a short-term policy. The insurance plans with shorter-term are generally inexpensive, and people get lured in making the wrong decision.
Let us understand with an example. Suppose you buy term insurance at the age of 25 for 20 years; you will get the coverage until 45 years. In this case, when you buy a new policy at the age of 45, you may have to pay a higher premium as you may be at a higher risk of suffering from diseases due to old age.
Considering you may have other financial responsibilities, a higher premium may burn a deep hole in your pocket. So, it is advisable to purchase a long-term plan so that you remain covered for a maximum period. It is better to choose a plan that provides you coverage until the retirement age.
- Providing inaccurate information
One of the most common mistakes people make while buying a term insurance is that they provide wrong or incomplete information about their health status. But, such practices can have a negative impact.
If you hide your medical history from the insurer, and in case your cause of death is linked to an undisclosed health condition, there are high chances that the insurer will reject the claim. This means your family will not receive the financial benefit of the policy. While they are already grieving the loss, the last thing you would want for them is to face a financial burden.
Hence, it is advisable to fill the application form carefully and provide correct details relating to your age, pre-existing diseases, income, personal habits, medical history, etc.
- Not buying online
Many people in India still believe in the traditional ways of buying an insurance policy; they rely on their insurance agent to suggest the best policy. Some prefer meeting the insurance officer to discuss the different policies offered by their company.
But, these old methods can be time-consuming and tedious. Besides, the agent and the insurance representative may push into buying a policy that does not suit your needs. Hence, to avoid these hassles, it is better to purchase a policy online.
Today, you can easily compare the term plans from different insurers simultaneously and choose the right policy that suits your needs and budget precisely. You can compare the plans in terms of the coverage offered, the flexibility in premium payment, the coverage duration, premium amount, other benefits, etc. and make an informed purchase decision.
While buying a term plan, do your due diligence, and avoid making the above-mentioned amateur mistakes. Take your time to learn more about the policy and choose the one that best suits your needs.