Term Insurance Buying tips: A term insurance plan is the most essential coverage that you need if you want to provide financial security to your family in your absence. The plan covers premature death and gives financial assistance to the family if the bread-winner dies too early. Given the importance of the plan, it finds a place in many people’s financial portfolio. But do they manage to buy the best term insurance policy?
There are some common mistakes which policyholders commit when investing in a term insurance policy. These mistakes, unwittingly, prevent them from enjoying the full benefits of the policy. Let’s have a look at such mistakes and their possible solutions:
1. Skimping on the coverage
This is, by far, the most common and popular mistake among individuals. When buying a term insurance plan, many policyholders skimp on the coverage and opt for a low sum assured in a bid to save on the premium outgo. They do not quantify their family’s financial needs, the expected inflation and quantum of financial goals when choosing the coverage. This leads to a low coverage which often proves insufficient in meeting the family’s needs.
The solution
An optimal sum insured level is a must to justify a term insurance plan. The coverage should be such that it not only helps your family members meet their daily lifestyle expenses it also fulfils their financial goals. Experts believe that a sum assured of at least 10 to 12 times the annual income is the bare minimum coverage that is needed. You can also choose other methods like Human Life Value method or factor in your existing net worth and then choose the sum assured. Whatever method you select, ensure that the coverage is sufficient in fulfilling its goal.
2. Choosing a limited tenure
Term insurance plans, usually, provide only death cover. As such, choosing a limited tenure reduces the probability of claims and makes the plan ineffective in fulfilling your need.
The solution
Always choose the maximum possible coverage tenure in your term insurance policy. Nowadays, term plans also allow you the option to extend your coverage till 99 or 100 years of age like whole life plans.
3. Overlooking riders
Riders are additional coverage benefits which, when added to the base policy, increase the scope of coverage. Riders involve a small extra premium which gets added to the base premium of the policy. However, despite the coverage benefits, riders are often overlooked at the time of buying. Is it wise?
The solution
Riders like accidental death benefit rider and critical illness rider are quite relevant and should not be missed. While the former pays an additional benefit in case of accidental death or disablement, the latter pays a lump sum benefit if you suffer from a critical illness. This additional benefit provides you and/or your family an additional financial benefit to meet unforeseen contingencies. The premiums are very low and can be easily afforded. So, always assess your coverage needs and opt for the required riders to make your term insurance policy more comprehensive.
4. Delaying buying the plan
It is a very common myth among the youth of today that given their age, they are least likely to die. This, inadvertently causes them to delay buying a term insurance plan. They, however, overlook the probability of accidental deaths. Moreover, given the recent Coronavirus pandemic, dying due to COVID can also be possible? In these cases, is delaying the plan a suitable course of action?
The solution
A term insurance plan should be bought as early as possible so that you can be insured from an earlier age. When you buy the plan young you also get the benefit of low premiums and a restriction-free coverage.
5. Buying without comparing
Another popular mistake is buying a term plan blindly. This prevents you from getting the best coverage for your money’s worth.
What should you do?
There are 24 life insurers and all of them offer one or more term insurance policy. Comparing, therefore, becomes essential. Comparing helps you choose a policy with the best and the most suitable coverage benefits. Moreover, you can compare the premium quotes of different plans and get the best deal on your policy. The internet has made comparing easy and you should, therefore, use this ease and compare the available policies.
To err is human but to err after knowing the pitfalls is foolish. So, keep in mind the afore-mentioned mistakes which you might commit when buying term insurance and avoid them. If you take the precautionary measures mentioned against each mistake, you would be able to get the best policy and financial security. So, make an informed choice the next time you are buying a term insurance plan.
By Dhirendra Mahyavanshi, Co-Founder, Turtlemint (an InsurTech Company)
