5 Mistakes to Avoid While Purchasing a Term Life Insurance
You would have heard the age-old adage ‘‘a stitch in time saves nine’’. This holds true while buying a term insurance plan as well. You must buy a comprehensive plan that provides a sizeable guaranteed amount after factoring in inflation and other cost escalations. A term policy is a non-retractable decision and requires a considerable evaluation of a host of factors like lump sum amount, need for inclusion of riders, and premium liability, among others. You should avoid some critical mistakes while purchasing a term policy plan as it could have disastrous financial consequences later, which cannot be mitigated.
Mistakes to avoid while buying term insurance
Term insurance provides a guaranteed lump sum to your nominee in case of your sudden demise. This is facilitated by the payment of regular premiums throughout the policy term. The following are some of the blunders, which should be avoided while selecting a plan.
- Buying insufficient term cover
Often policyholders attempt to keep premium payments low and end up buying a low-value insurance policy. This would result in inadequate sum assured and may put the surviving family members in financial difficulty at a later stage. Experts have provided a simple yardstick i.e. the ten times rule. Your term insurance policy’s sum assured should be at least ten times your annual income.
- Adopting shorter tenures
You might wish to take the easy route of lower premium payment by taking a shorter tenure plan. However, this may not be a wise decision, as you would have to purchase another plan in case you outlive the existing plan. With the progression of time, the premiums would turn costly, due to the impact of inflation, and other financial needs might surface. This might make the purchase of a second plan unaffordable. You must buy a plan with a long-term view after considering your current health status, age, and financial support required by the family in the future.
- Wrong or inadequate disclosure of information
Hiding information like a serious health condition from the insurer could result in rejection of claims and your policy would be declared as null and void. The premium payments would be a waste, as the nominees would not be able to obtain any money. This is a kind of fraud must be completely avoided. You must be honest on information like existing diseases, personal habits, health condition, and age, among various other factors.
- Postponement of plan purchase
You could be under the misconception that you would not require insurance when you are young. However, later in your life, there may be financial responsibilities, compounded by inflation, which may make premium payments exorbitantly high. This would render a policy plan unaffordable in the future.
- Excessive customization with add-ons/riders
Another term insurance benefit – Add-ons/riders can be advantageous as they offer extra protection against critical illness, hospitalization, accidents, disability, or death. In some instances, the inclusion of more riders could prove to be quite expensive. You must choose the rider options based on your requirement.
A term life insurance plan is an important life insurance cover. You need to do a proper term insurance comparison of the various plans offered by noteworthy insurance companies. You need to evaluate the pros and cons of each policy before deciding upon the best plan suited as per your needs. It is rightly said that haste makes waste in case of a policy selection and you must take your time in the due diligence process. You must also keep the nominee completely informed about the terms and clauses of the term insurance plan to facilitate easy claims at a later stage.