Buying a term insurance plan is an important decision that must be done carefully if you want to get the most out of it.
A term plan is basically a life insurance protection plan that offers financial cover to the policyholder’s beneficiary, in the event of the insured’s death. Ideally, a term plan should be the first insurance product that you buy as it can ensure financial security for your family, in case of your untimely death. As term insurance can provide a safety net for your family, it is extremely important that you buy the correct plan.
Inaccurate information, rushing to buy the cheapest policy, buying life insurance just to save tax or delayed purchases are some common blunders, often leading to inadequate cover or higher premiums in the long run. Here are certain mistakes that you should avoid while buying a term policy.
1.Buying insufficient cover
Many people fail to consider current expenses such as home loans, car loans etc., and end up buying insufficient cover. Moreover, they forget to account for inflation, especially when calculating future expenses like increasing prices, children’s education etc. This can be avoided through the simple use of a life insurance calculator that can help determine an approximate amount that your family will need, while also considering inflation rates.
Another mistake is choosing a lower cover to keep the premium amount low. Doing so could mean getting inadequate sum assured, which would ultimately result in your funds drying up quickly. Remember, the aim of a term plan is to help your family, in case something happens to you. An insufficient cover could affect this.
• How to avoid it: As a thumb rule, your policy’s sum assured should be ten times your yearly income. For e.g. if your annual income is 5 lakhs, your policy cover should be 50 lakhs.
2.Taking shorter terms
To save money, you might end up opting for shorter terms to pay lesser premiums. Contrary to your expectations, this choice could cost you more in the long run. Why? Because once a policy ends, you will have to buy a new one. As you get older, the cost of your premium will increase and so will your responsibilities, making it more difficult to afford a plan. Additionally, if you aren’t in the best of health, it is possible that you could be denied a new term insurance plan.
• How to avoid it: Buy a term plan keeping the future in mind. Take into consideration your age, current health condition and the level of financial assistance your family might require in your absence.
3.Incomplete or wrong disclosure of information
Incomplete or wrong disclosure of information, while buying a term plan is another mistake that can have a negative impact.
For example, if you keep your medical history a secret from your insurer, and the cause of your death is traced back to an undisclosed health condition, your claim could be rejected and the policy would be declared null or void. This means that all the money you paid towards the plan will be in vain, and your beneficiaries will get nothing from the insurance company.
• How to avoid it: Fill the form carefully. Ensure information like your age, health condition, personal habits, pre-existing diseases etc. are correct. This will leave no room for discrepancies, which will be easier to make claims.
People often think that they do not need insurance when they are young as they are healthy and fit. However, as you enter your 30s, your responsibilities and expenses increase, thereby making it slightly more difficult to buy insurance. In addition to this, your insurance premium is likely to increase as you get older, and this will add to your expenses.
As an example, let’s look at how premium increases with age for Rs 1 crore cover offered by Aegon life’s online iTerm plan.
5.Opting for excessive riders
Riders or add-ons add to the advantages of a term plan, as they provide additional cover against death, disability, hospitalization or critical illness. It might seem like a cheaper option, but in some cases, excessive riders could end up becoming more expensive in the long run.
• How to avoid it: When choosing riders, understand your requirements well and then choose wisely. This way, you can be assured of optimum protection without it affecting your current finances.
When buying a term insurance place, it is essential that you have all the information about it, and are aware of all the terms and clauses. It is also important that you inform your nominees about the plan and give them all the necessary information and documents, to prevent any problems when making a claim later.
You can make things much easier for your family by using iCare, so that they remain informed about your finances and other important details. A social initiative by Aegon Life Insurance Company, iCare lets you store critical information online, which can be easily accessed by your family in your absence. You can learn more about iCare here.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or insurance or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.