10 Mistakes To Avoid While Buying A Term Insurance Plan

Term insurance plan is a kind of life insurance that gives you coverage for a specified period. It secures your family's future in case any unfortunate event of death occurs to you. It acts as an income replacement in your absence. Your family's future is of utmost importance and cannot be at stake at any point of time, so buying term insurance becomes a crucial decision and must be done carefully if you want to get the most out of it. 

However, there is a possibility of certain mistakes being committed when buying a term insurance plan, which may impact the optimum utilisation of the plan. Below are some crucial mistakes to avoid in order to make sure that you make the most out of your life insurance. 

10 Mistakes To Avoid While Buying A Term Insurance Plan

Listed below are some mistakes that you should avoid while buying a term insurance plan: 

1. Not Comparing Premiums

In a term insurance plan, the cover amount to premium ratio is very high. This is because by paying a small premium amount, you can get a high sum assured. There will still be a big difference between the premiums of different insurance companies. Therefore, it is better to compare term insurance premiums across a few insurers before finalizing the plan. 

2. Getting A Low Life Cover Amount

Many people buy term insurance plans without estimating the actual requirements of the life cover. Buying a term insurance plan for inadequate coverage may not serve the purpose for which it is purchased. Ideally, keeping coverages between 15 to 20 times of your annual income is beneficial. Depending on your age, financial liabilities and family circumstances you may need a higher cover amount. 

3. Buying For Lower Tenure

The purpose of life insurance is to ensure the protection of life goals. Irrespective of your current age, buy a term insurance plan at least till the age of 60. Life goals such as children's education, buying a home etc. are usually met by then. However for late starters or those who may still have financial liabilities after the age of 60, they may have to consider buying a term insurance plan even for longer tenure. Once the liabilities are met, you may stop paying the premium as there is no maturity value in them. 

4. Buying Late

If you are young and unmarried, buying term insurance may not be in your to-do list. Your parents may be financially dependent on you or you may be getting married in a few years. The premium that you will pay at a young age will be way less than what you will pay at a higher age. Once purchased at a young age, you will keep paying the same premium every year for 25 to 30 years. 

5. Not Adding Riders

Besides the risk of untimely death due to natural causes, there are risks on other fronts as well. A disability leaves one with a reduced earning capacity while a medical emergency may also impact one's savings. A term insurance plan provides a means to add optional benefits called riders such as accidental rider, disability rider, critical illness rider etc. Adding such riders to your term insurance policy enhances the benefits and provides all-round protection.

6. Not Exploring Variations

The death benefit in a plain term insurance plan remains the same during the policy period. However, there are a few other plans which come with an increasing cover or decreasing cover. In some plans, there is an option for the family to receive a portion of the sum assured as a lump sum and the balance in regular instalments. You even have a pay till 60 option while continuing the cover for a longer duration. 

7. Not Filling Form On Your Own

Generally, the buyer leaves the application form to be filled up by the insurance agent. Going through the application form one gets to know the information the insurers are seeking. It also gives you full control of the disclosures being made in the form. It is your life that is being insured and hence a sense of ownership will come once you fill the form by yourself. 

8. Not Disclosing Material Information

There is some important information that the insurer will want you to disclose in the application form. Such disclosure will relate to your income and medical condition including that of your family. It is important that you disclose them completely while applying. Any non-disclosure may result in repudiation of the claim, at the hands of the nominees, which will not serve the purpose for which you had purchased the term insurance plan.

9. Not Informing Your Nominees

If you want to make sure that the benefits of the term insurance plan goes to your family, you can endorse the policy under the Married Women Property Act as well. Also, having bought a term insurance policy for the benefits of your family members, you need to ensure that they are aware of the purchase and they have a copy of the policy documents and the premium payment receipts. 

10. Ruling Out E-Insurance Options

Purchasing a term insurance plan online has several benefits such as purchase offers, quick process, and etc. Ruling out e-insurance may result in more paperwork and delay in the process. 

To Conclude

By now you must have understood you to avoid mistakes in term plan buying. You can now make a smart choice when it comes to buying the best term insurance plan, which can prove to be an asset for you and your family.

Also read - Term Insurance vs Whole Life Insurance: Which One You Should Buy?

Life Insurance Policy vs. Accidental Death Insurance Policy - Explained