- Date : 28/02/2020
- Read: 6 mins
Buying a term insurance plan is an important decision that must be done carefully. Compare term plans before you pick the one most suitable to you
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 life insurance product that you buy as it can ensure financial security for your family, in case of an unfortunate incident. As term insurance can provide a safety net for your family, it is extremely important that you buy the correct plan. It is recommended that you extensively study the various term plans available, compare them and pick the best term plan suitable to you.
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. So, can you have more than one life insurance policy? How does life insurance for senior citizens work?
These are some of the questions we look to answer. The article will also highlight certain mistakes that you should avoid while buying a term policy.
1. Buying insufficient term insurance cover
Many people fail to consider current expenses such as home loans, car loans, etc., and end up buying an insufficient term insurance 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 to know ideal term plan premium. It 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 their well-being.
How to avoid it?
s a thumb rule, your term insurance policy’s sum assured should be ten times your yearly income. For e.g. if your annual income is Rs 5 lakh, your policy cover should be Rs 50 lakh.
Another common question is, can you have two life insurance policies. If you are underinsured or your financial situation changes, you can invest in additional life insurance policies. There is no restriction on the number of policies as long as it doesn’t exceed your insurability basis the Human Life Value (HLV).
2. Taking shorter terms
To save money, you might end up opting for shorter terms to pay lesser term plan premium. Contrary to your expectations, this choice could cost you more in the long run. Why? Because once a term insurance coverage ends, you will have to buy a new one. As you get older, life insurance for senior citizens gets expensive. The cost of your premium will increase and so will your responsibilities, making it more difficult to afford a life insurance 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. You can also consider buying a term plan with return of premium. This is essentially a term plan that has all the death benefits, but it also has added benefit of returning the premium paid if the policyholder survives the policy term.
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, especially when you’re looking for the best term plan.
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. 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 make it easier and seamless to make claims.
Related: Term vs whole life insurance
4. Delayed purchase of life insurance
People often think that they do not need life 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 increase the advantages of a term plan, as they provide additional cover against death, disability, hospitalisation or critical illness. 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. This can be done with term plan comparison. 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 yourself and your family by using iCare. 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. With this, they can remain informed about your finances and other important details. 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.