The world we live in today is full of uncertainties, making life insurance more important than ever. A life insurance policy ensures the well-being of your family even when you are not around anymore. A term plan is one of the simplest and most cost-effective methods of life insurance. However, the process of buying a term plan can get a bit confusing and intimidating. Here are some common mistakes that people make when buying a term plan and how you can avoid them.
1. Insufficient term insurance cover: The basic principle behind buying any type of insurance is to be able to cover the costs of your dependents’ needs. The same is true for a term plan as well. Unfortunately, many people miscalculate their requirements and end up settling for a low cover.
It is recommended that when you buy a term life insurance policy, you should pick a cover that is at least 8 to 10 times of your annual income. You can also pick a cover that exceeds this amount if you feel that your family may require more funds, but anything below this limit would be extremely insufficient in the long run. If you are unsure about how to pick an adequate cover, you can use the Human Life Value calculator to get a more accurate value.
2. Shorter policy term: This is one of the most common mistakes that people make when opting for a term plan. Insurance with shorter terms is inexpensive and may lure you into making a wrong decision. For example, if you take a term plan for 20 years at the age of 25, it will cover you till the age of 45. Now when you buy another insurance policy at 45, you will have to endure an increased cost of premiums. When you add this to your other responsibilities and expenses at that age, it can drill a hole in your pocket.
Instead of short terms, you should try to opt for adequate terms. One should avoid getting lured by lesser premiums that only provide cover for 10 or 20 years. Instead, you should pick a policy that covers you at least till you hit retirement, if not more.
3. Delaying the purchase of life insurance: The biggest misconception that people carry in their heads is to think that insurance is only necessary after a certain age. Most people tend to delay buying life insurance until they are married, have kids, or have a family to look after. However, it is easier and a lot more practical to buy insurance at an early stage in life. Always remember that the earlier you purchase your term plan, the lower will be your premium amount. You are also less likely to be afflicted by common lifestyle diseases in your youth than you would be in your 30s or 40s, which would decrease your chances of getting a life insurance policy.
Experts suggest that you should aim to buy a term plan in your 20s. It is also advisable to pick a term insurance plan that lets you increase your cover and change the nominee during key milestones in your life. For example, after marriage or when you have children.
4. Not sharing correct medical information: Not disclosing a health condition may result in a lower premium at first, but if your death is traced back to a health condition that you suffered from at the time of buying the policy, the insurance company has the right to refuse the claim. This can be a very undesirable situation for your grieving family and can affect them severely in a crisis.
Saving a couple of rupees on the premium is a short-term saving with absolutely no long-term benefits. When you buy a term plan, make sure to disclose all necessary information to your insurance provider. Always think of the bigger picture and keep your family’s best interests in mind at all times.
5. Not buying a policy online: Many people still believe in the older route of physically meeting with an insurance provider to discuss the features of a policy. But taking out time from busy schedules can be a challenge and can also often result in procrastinating.
It is safe to say that we live in a virtual world these days. Right from groceries to clothes, everything can be bought online and insurance is no different. Buying insurance online is not just easy but also extremely safe. It is also a more affordable option as customers can enjoy many discount options from the comfort of their homes. For example, ICICI Pru iProtect Smart provides a 5% discount when bought online*.
6. Treating insurance as an investment: While it is true that insurance does have tax benefits, limiting it to a mere investment is a gross misinterpretation that many people make. A lot of people also think of basic term insurance plans as a waste of money as you don’t get any benefit if you survive the policy term. But you must not forget that insurance is a protection tool above anything else. Some plans may have maturity benefits, but regardless of that, the main purpose of buying insurance is to ensure the financial security of your family in your absence.
Term life insurance offers a great financial cushion to your family in what could be the most unfortunate time in their lives. It is a great way to make sure that you are with your loved ones at every step of the way. Do not get bogged down by common misconceptions and end up making mistakes while buying an insurance cover. Make sure to follow these points and take an informed decision.
You can also download our free Term Insurance Checklist to help you choose the right term insurance plan.