A term insurance plan is a type of life insurance cover that provides financial protection to the nominee or family in the event of the untimely demise of the policyholder. As a term plan provides and creates financial reserves, it is imperative to choose the correct plan to get the most out of it.
People frequently make mistakes when opting for a term plan which ends up causing unwanted consequences. Some of the common mistakes people make while purchasing term plans are providing incorrect information, opting for the cheapest coverage, not comparing the benefits with different policies.
Here are some common errors people make while choosing a term insurance plan:
1. Purchasing a term plan for a short period
Purchasing a term insurance plan is a shrewd decision. To get the most out of it, term plans need to provide cover till the maximum possible age that it can remain valid. Short term periods will result in less premium initially, but if there is an intention to renew it somewhere down the line, then the amount of premium will increase significantly. This may lead to the benefits of the short term insurance plan to become redundant at a time when it would be needed the most.
2. Insufficient sum assured
A term insurance plan promises financial cover to the policyholder’s family in the event of their demise. This cover is calculated based on the policyholder’s current financial status, including their lifestyle and education needs of their children. If the policyholder is the sole earner in the family and the correct amount of coverage is not chosen then the family will encounter some difficulties in maintaining their lifestyle. A lower coverage amount may not last long enough until the family figures out another source of income or be enough to support the child’s education.
3. Delaying the purchase of a term plan
The earlier you can purchase a term insurance plan, the more cover you can get with considerably less premiums. One of the best and ideal times to purchase term insurance plans is when you are relatively young and have a stable income. This will ensure that you will be covered against any unforeseen incidents of life.
4. Choosing the first option
It is imperative to do our due diligence before committing to an insurance policy. The plan you choose should provide the correct sum assured at an affordable premium. Study the plan carefully and choose additional coverage where necessary to ensure that you get the maximum out of the term plan. Most people make the mistake of committing to the first plan they get and end up with an ineffective term plan.
5. Preferring price over coverage
A term insurance plan usually provides cover against critical illnesses separate from death benefits. Selecting the correct plan may provide the correct sum assured and affordable premiums that are suited to your needs. The most cost-effective option might not provide the best coverage and benefits of a term plan. As a result, it is best to choose an affordable plan with the inclusion of a few add-ons to ensure the right coverage.
6. Giving out incorrect information
When purchasing a policy, you are required to provide accurate information to receive the maximum out of the term plan. If there is evidence of hiding an illness or wrong personal information, it could lead to the coverage becoming void at a time it would be needed the most. This is why it is essential to give the correct information and not mislead insurance agencies and even yourself, especially during the renewal of the policy.
7. Opting for excessive riders or no rider at all
Insurance riders are always useful for getting the best returns from an insurance policy. But it be done with caution. An excessive number of riders will result in increased premiums that can become difficult to manage in the future. Only opt for the riders you need and are applicable to you or else omit them completely from the policy to make it the most cost-effective and affordable.
8. Ruling out e-insurance options
As purchasing insurance policies have been historically conducted face to face, it can be difficult for some to trust insurance portals on the internet. But online portals have several benefits such as offers, discounts and quick processing. Choosing e-insurance can be crucial in saving the headache of doing all the paperwork and will be relatively quick to process in comparison to its traditional counterpart.
9. Shifting without a second thought
People might realize that their current plan is as effective as they thought and might cause them to change hastily to a new term plan which offers several benefits missing from their previous policy but will end up costing a lot more. Also, the time period between terminating the current policy and choosing a new one is a risk as it will leave uninsured for the duration the new policy starts. Therefore, before terminating or shifting current plans it is wise to think twice and consider making changes to the current term policy and make it more effective.
10. Not studying the plan
Some people trust the insurance agent completely and commit to the term insurance plan without going through it themselves. This leaves them vulnerable to deceit and also leads to inaccurate coverage due to miscommunications. The sum assured, terms and conditions of the policy and everything else mentioned within must be thoroughly examined and researched. This will give you a better idea of exactly what you are purchasing and how the policy process works.