Buying a term insurance policy is one of the best ways to protect and safeguard your family’s financial future. It is a long-term commitment and works as an income replacement for your family after you are gone. Your family can use the amount, i.e., the death benefit they get from the insurance company, to meet their everyday expenses and fund their life goals.
Since it is such a critical purchase that will significantly impact your family’s future life, you must take the purchase decision prudently. It is paramount that you get everything right, including the coverage amount, insurance tenure, etc., and avoid making the common rookie mistakes.
Let us look at common blunders people make while buying term insurance plans and how to avoid them.
Deciding the sum assured based on the thumb rule
When buying a term insurance policy and choosing the right coverage amount, most people follow the thumb rule, which says the cover amount must be at least 15 to 20 times the annual income. However, this rule has many flaws. It considers only the average of many things and may not suit your specific needs and financial situation.
So, you must decide the coverage amount based on your financial goals and needs. The amount must be enough to meet your family’s needs in your absence. The best way to determine the right amount is to know the gap between what you will leave behind and what your family needs.
List down your financial obligations, and assess your investments and savings. The difference between these two will be the gap you must cover through term insurance.
Choosing a short-term policy
Many people tend to choose a term insurance policy for a shorter duration to save money on the premium. However, this could cost you immensely in the long run. Because once the policy expires, you must buy a new one, and purchasing a new policy in old age could be expensive and unaffordable. It is best to buy a long-term policy so that you get coverage for a maximum period.
Not buying online
Another common mistake people make is relying on the insurance agent to purchase the best term plan. In most cases, the agents tend to compel people to buy a policy that allows them to get a maximum commission.
Hence, it is better to purchase a policy online. Here you get the policy at a cheaper rate than offline. Besides, when you buy term insurance online, you can compare the different plans and make an informed decision.
Providing inaccurate information
Providing false or incomplete information in the term insurance application is another common blunder people make and eventually face repercussions while filing a claim. If you hide information about your medical condition in the form and if the insurer finds out about it while verifying the claim, they will outright deny paying the claim.
So, it is vital that you fill out the application carefully, and provide the right information about your age, profession, income, personal habits, health condition, etc., to avoid discrepancies and get the claim amount without any hassles.
Buying too many add-ons
Riders or add-ons allow you to extend the coverage scope of your life insurance policy and get protection against specific risks that are not covered under the standard policy. With every rider you choose, you must pay an additional premium, which can increase the overall cost.
It is advisable to assess your needs and choose the right rider so that you can afford the premium and yet get the best coverage.
Now that you know the blunders people make while buying a term insurance policy, avoid making such mistakes and choose wisely!