Say you purchased or you are planning to get one insurance policy for your family. One of the primary reasons behind anyone getting the policy is to make sure the sum assured would be able to replace the income you are contributing to the family.
In this scenario, would you really want one of the mistakes that you made while purchasing the policy to get in between your family’s financial security? Of course not, right? The only way to avoid any problems later on is to make sure you read about the common mistakes that people make while buying a life insurance policy.
Let’s take a look at some of the most usual blunders that people make while purchasing a life insurance plan:
Mistake 1: Miscalculating Your Coverage: In order to protect your family financially in your absence, you need to accurately calculate the coverage that would be required by them. You don’t want your family to run out of money while you’re away, and you also don’t want to be saddled with unnecessary financial burdens from buying excessive coverage.
The Solution: Consider the following aspects while calculating the required coverage: your age, dependents, tenure, monthly/yearly expenses, and existing financial liabilities. You can also use a free life insurance coverage calculator for this reason.
Mistake 2: Procrastinating the purchase: “I am just in my 20s; why would I need a term insurance plan?” If you are thinking along these lines and delaying the purchase of your plan, it is time for a Re-Take. Purchase a term or any life insurance plan as soon as possible, whether in your early or mid-20s, as the premium is locked in based on your age at the time of purchase. The earlier you purchase the plan, the lesser your chances of getting severe medical conditions. If you have a lifestyle condition such as diabetes or hypertension, you will pay significantly higher premiums. Buying a plan when you are young cuts your premium burden significantly. As a result, the longer you wait to obtain a term insurance plan, the higher your premium will be, and nobody wants that.
Mistake 3: Forgetting to compare the plan: Term insurance plans are long-term financial products. If you choose the first term or life insurance provider and plan that you come across on Google, you may miss out on a number of important benefits that another life insurance policy from a different provider must have provided you.
Solution: Before deciding on a life insurance policy, compare all available options and insurers present in India. During this research, take into account the Claim Settlement Ratio (average of the past three years), amount Settlement Ratio (average over the last three years), Volume of complaints (average of the last three years)
Mistake 4: Ignoring fine print: Term insurance plans provide extensive coverage, but be wary of restrictions and exclusions in the fine print. If you overlook these facts throughout the process of purchasing, you may end up with a plan that includes unrelated limitations and clauses which reduce the total payment of your coverage.
The Solution: After you’ve decided on a plan, read the fine print. Learn about permanent exclusions, waiting periods, survival periods, and more.
Mistake 5: Treating term insurance as an investment: Term insurance is a protection instrument, not an investment option. A standard term plan may only provide benefits if the policyholder dies, has a catastrophic illness or becomes disabled during the plan’s duration. However, its primary purpose is to provide financial support in the event of his death. Furthermore, plans like ULIP and Endowment plans that offer investment and return options are good, but those plans may not be able to fulfil your investment needs as it comes with added fees and high premiums) nor your dependents’ needs (because these plans do not offer a very high death cover). So it’s best to keep investing and protection plans separate so that your family isn’t put at risk if you die (or become permanently disabled).
Mistake 6: Not selecting value-added riders.
Term insurers/agents would advise you to add any available riders to your plan because it would be financially advantageous for them. However, this would be a costly and risky decision.
The Remedy: Only a few rider alternatives can provide value to your existing policy, such as a premium waiver if you are confined to a bed for life. While the rider involves a small fee that is added to your premium, it keeps your plan active in the event of a disability without requiring you to pay any premiums.
Another rider that may be useful is the Critical Illness Rider. Under this rider, the insurer provides a list of 15-20 illnesses. If you develop any of these conditions, there is a good risk that your job and, consequently, your income will be put on hold for an extended period of time. In such a case, your term insurer will pay you a considerable sum (pre-determined by you when you purchased the policy) that you can spend however you see proper. (Keep in mind that there are two sorts of critical illness coverage: one that pays out of your sum assured and one that pays out more than your corpus.)
Mistake 7: Selecting the wrong tenure for your plan: Most of us extends our life insurance policy to 60 years as they have heard that this is the best time to surrender your life insurance policy. However, there is no set age at which a term insurance plan “should” be active. The criteria that determine the duration of a plan are absolutely different for each individual. To determine term plan tenure, consider your dependents’ expected age of financial independence, the approximate year of retirement, etc.
Conclusion
A 40-year term insurance policy with 1 crore coverage costs between ₹10-₹11k for individuals aged 25 to 65. Given the substantial money for relatively low premiums, term insurers are unwilling to allow you to make significant changes to your plan after it has been bought. This strictness emphasizes the need to avoid any potential errors while purchasing a term insurance policy.
Term insurance policies often provide coverage of ₹1 crore or more, depending on factors such as number of dependents and inflation. Furthermore, the funds will be used to protect your family in your absence. With such significant risks involved, you do not want to take a chance while selecting your ideal term insurance coverage. Contact an expert, rely on online coverage calculators, or use a free term insurer plan comparison tool – whatever strategy you end up using, choose an excellent term insurance plan and a reputable insurer.
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