Term plans are insurance policies that provide your family with a financial shield and a means of income in the event of your death. While buying a term plan you need to make sure that you are getting the maximum benefits from your plan. People often make a lot of avoidable mistakes while buying term plans, like not opting for enough coverage or lying about any pre-existing health conditions. While there may be some short term benefits, the long term consequences can be very bad. You may not get enough coverage when you need, or you might get it at very high premiums. Here are nine common mistakes people make while buying term plans.
9 Mistakes That Won’t Let You Take the Full Advantage of a Term Plan
A right term plan has much to offer you in terms of financial security and peace of mind. However, you must make sure that you get the maximum benefit and for the premiums you pay. Avoiding a few, yet common mistakes can ensure that you reap the maximum benefits from your term life insurance.
1. Delay in purchasing term insurance
Many people think that they only need a term insurance plan when they get married and have kids, or have someone to look after. It might seem that if you don’t have any dependents currently, buying a term plan would be a waste of money. However, if you get a plan late in life, you would have to pay a higher premium for the same coverage. Also, you are more likely to be healthy when you are young. If you develop any medical conditions later, like high blood pressure or diabetes, your chances of getting an insurance policy could decrease considerably.
It is therefore suggested that you get a term policy when you are in your twenties. You can change the cover amount and the nominee if you get married, have children, change jobs, etc.
2. Choosing a low sum assured plan to save on premiums
This is one of the most common mistakes made by policyholders. In order to pay a lesser premium amount, people might choose a term plan that offers low coverage. The cover amount should be decided keeping in mind the number of dependents and their future financial needs. It would be unwise to opt for a term plan that wouldn’t cover your family’s needs just to save a few hundred bucks on premium amount. Term insurance policies offer a high benefit at reasonable premiums. If you can afford to pay a higher premium for better coverage, now is not the time for miserliness.
3. Choosing a shorter term
Another common mistake is choosing a term plan with a shorter tenure. People usually make this mistake because term plans with shorter tenures cost less in terms of premium. There are many disadvantages in getting a short term plan.
- When the term plan expires, you will get survival benefits but you and your family will be left without any shield or security.
- If you decide to get another term plan after the first one expires, you will have to pay a considerably higher premium. For example, if you get a 20-year plan when you are 27, the plan will expire when you are 48. Getting a term plan at 48 will come with high premiums.
- Also, you may develop health conditions later in life. If your term plan expires at that time, getting another will be significantly harder.
Therefore, it is advised to opt for a term plan that lasts at least till your retirement. One should not get lured by short term plans that come with lower premiums.
4. Buying without comparing online
There are a ton of term insurance policies in the market, offered by various insurance companies. Finding a plan that is perfectly suited for you will require a lot of research. It is very essential to compare different plans so that you don’t settle for a deal that might prove to be disadvantageous for you. You need to find a plan so that you get the maximum benefits for the premiums you pay. Two plans may look similar but they could have different features, benefits and premium amounts. There may be other plans more suited to your needs. You might find better features at the same premiums, or you might find the same features at a lower premium.
However, it is not possible to go through the details and compare each and every policy for every company by yourself. Several websites offer a simple, one-stop solution to compare policies from a wide range of insurance companies. You can filter the offered plans according to your profile and your needs.
5. Not verifying the proposal form
It is very important to thoroughly understand the advantages and the disadvantages of the term plan you are considering to buy. You should have a good idea of the terms and conditions. Read the fine print of the policy so that you know what the terms entail, your rights and limitations, so that you know how the policy process works. You might find something in the fine print that could make you want to look for other plans.
6. Insufficient term insurance cover
While buying a term plan insurance, it might be tempting to go for a plan that offers a low sum assured so that you have to pay lesser premiums. However, your coverage amount should be based on your dependents’ needs, your lifestyle and your financial goals. The cover should be enough to not just sustain the daily needs of the family but also to meet future goals. Also, the value needs to be adjusted for inflation. The value of a rupee would most certainly be less than what it is now after thirty years. So, the amount you think that might be sufficient now may fall short in the future. Experts advise that the coverage amount must be at least ten to twelve times your annual income.
7. Sharing incorrect medical information
If you have a health condition, it might result in higher premiums for the same coverage. Therefore, it might be tempting to lie about your medical conditions in order to get a low premium amount. However, if the hidden medical condition becomes one of the factors behind your death, the insurance company can deny the entire premium amount to the family. Saving a few hundred bucks on premium can have disastrous consequences later. Your family would be left without any financial shield and no way to meet its daily needs. Denial of coverage amount can be very devastating for a family that is already mourning a death. Therefore, you should make decisions while keeping the bigger picture in mind. Always keep your family’s needs first.
8. Treating insurance as an investment only for tax benefits
The main objective of getting a term plan insurance is to provide your dependents with a financial shield and economic security in the event of your death, or any unfortunate circumstance. The fact that insurance has tax benefits is secondary. People might think term plans are a waste because you don’t get anything other than maturity benefits if you survive the term. However, imagine a scenario where you don’t survive the term. Your family would be left with no means of income. As term plans are a protection tool above anything else, it should not be considered as a means to avail tax benefits.
9. Not opting for Suitable Riders
Riders are add ons that the policyholder can purchase in addition to their term plan according to their needs. They add value to the term plan and are always useful to get the maximum benefit from your policy.
For instance, a critical illness rider will give you a pay-out in case you are diagnosed with a critical illness which is mentioned in the list of illnesses specified by the insurer. In the same way, there are many other riders which will give you a pay-out under different situations like accidental death benefit rider, waiver of premium rider etc.
While it is very important to have riders that fulfil your requirements, having a disproportionate number of riders is not a feasible option. It may result in a higher level of premium and can become unreasonable. Therefore, it is important that you carefully consider your requirements while choosing riders.
Summary:
Life is full of uncertainties which makes buying an insurance plan very important. You need to ensure that your family would have financial protection in your absence. Because of its important role, the decision of which plan to buy should be taken only after thorough examination and consideration. The room for any mistakes should be minimised so that you and your family can reap the full benefits of a term insurance plan.
