Getting a term insurance policy is an important aspect of financial planning as it protects your family and provides them with the required financial security in the event of your demise. It is a long-term investment that provides a much-needed income replacement to your family members to fund their life goals, pay off debts and meet daily expenses. As this policy can impact the quality of life of your family when you are not around anymore, you need to be quite thorough when planning to buy term insurance and steer clear of common mistakes.
Here are some of the most common/obvious mistakes made by people when selecting term insurance:
- Simply using the thumb rule to determine cover amount: Choosing a cover amount that is ‘20X your annual income’ is a common thumb rule that many term insurance policy buyers follow. But this rule is flawed as it considers many averages that might not be true for your family’s particular needs. Every person has varied financial goals and income capacity, and the situation of every family is different. By using a random thumb rule to calculate your insurance cover amount, you may end up with a sum assured that is not enough to meet the needs of your family. Hence, it is important to think about the specifics of your situation when zeroing in on the cover amount. There are reliable online tools available, like term insurance premium calculator that can be used to estimate the cover amount needed basis the information you feed in.
- Not considering the cost of coverage: While you may want the highest possible coverage for your family, you also need to consider the affordability of the policy. If you buy term insurance that has expensive premiums, you may find it challenging to keep up with the payments. Not being able to pay the premiums would eventually cause your policy to lapse and lose all the benefits offered by it. Hence, before you buy term insurance or any life insurance policy, you must take reference using a term insurance premium calculator and invest in a robust plan, the premiums of which you can afford.
- Shorter policy tenure: In the pursuit of finding the lowest premium amount, many people, unfortunately, select a policy with a very short term. But you must understand that term insurance is meant to be lifelong protection for your family. Therefore, a plan with a short tenure will not be able to fulfil that purpose. Your policy must have a tenure long enough to cover both debts and life goals. It should be more of a calculative-informed decision than just going for a lower premium.
- Selecting the very first option: Many policy buyers make the mistake of buying the first term insurance plan they come across. By doing so, there are chances that they will miss out on better insurance deals. Hence, before investing in any policy, you need to conduct proper research to find the right coverage amount and affordable premiums. Term insurance premium calculators and similar online tools have made it quite simple to compare multiple policies and identify the ones that match your needs and come within your budget.
- Not disclosing accurate medical information: If you believe that not properly disclosing your health information will allow you to save significantly on premiums, then you are mistaken. If your insurance company finds a discrepancy, it has the right to refuse the claim. Such a situation can ultimately hamper your family’s financial security, so it is best not to take any chances. You need to provide accurate details related to your health and submit relevant medical documents to the insurance company while buying a term insurance policy.
- Not buying a policy online: Many people procrastinate about buying insurance policies as they fail to take time from their busy schedule or prefer to physically visit an insurance provider’s local branch. Choosing to invest in insurance online would be the perfect solution to such issues. With an easy buying process, complete security, full visibility, and all that in the comfort of your home, there is no reason to not buy term insurance online.
- Delaying the purchase of term insurance: It is a common misconception that people do not need to invest in term insurance policies when they are young. In reality, it is, in fact, a wiser decision to buy term insurance when you are young, healthy, and have a stable income. The earlier you choose to get such insurance, the better coverage you can enjoy with a lower premium value.
Term insurance policies provide financial stability to your family in times of need. Therefore, you must try your best to avoid the above-mentioned mistakes while purchasing such policies.
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