Term insurance, the simplest and most cost-effective type of life insurance, should be a part of everyone's financial portfolio. However, the number of people who have actually opted for term insurance in India is on the lower end of the spectrum. Only 1 in every 5 urban Indians has a term plan. A lack of awareness about the basics of term insurance is partially to blame.
While term insurance is a sound financial option, for most individuals to make the most of its features and benefits, one should be thoroughly apprised of and refrain from making some fairly common errors. In building such awareness, one can derive the most benefits from their term plan.
Here are the 8 primary mistakes that you must avoid while taking a term plan.
Selecting a short term
In pursuit of the lowest premium, you might select a plan with a short term. However, if one opts for a short term and ends up outliving the term, they would need to renew their old plan or purchase a new one, potentially increasing their premium rates. Put simply, term insurance is lifelong protection for your family, and a plan with a short term does not serve that purpose.
Selecting a lower sum assured
A term plan's sum assured should ideally be 10-15 times your monthly income. One might find it tempting to select a lower sum assured owing to the lower premium that comes with it. This would, however, leave your family with an inadequate amount of money in your absence. Selecting a sum assured that fulfills the needs of your family and gives them the financial freedom to sustain their current lifestyle is crucial.
Procrastination
Life insurance might not seem like a huge priority for those in the prime of their health. However, the older one gets, the higher the risk of mortality and, thus, the more expensive the term plan. To avail of the lowest premium rates and the best possible coverage, purchasing a term plan early can prove to be beneficial.
Giving insufficient information
While applying for term insurance, you would be asked to supply the insurer with certain personal details, including your medical history and lifestyle habits. Not disclosing relevant information during the application process could eventually lead to claims being denied by the insurer. In order to ensure a smooth claims process, it is recommended that you divulge all necessary information, even if it results in a higher premium.
Exiting a policy
Prioritizing your term life insurance is important even during a cash crunch. Exiting a policy could not only leave your family unsecured for the rest of your life, but could also incur a surrender charge in some cases. This defeats the purpose of the premiums already paid towards your policy. Even if you are planning on opting for another policy in the near future, you would be left uninsured in the period between the end of your current policy and the beginning of another, which is not advisable. Additionally, the premiums for your new policy might be higher, as premiums increase with age.
Buying too many policies
Choosing one comprehensive term life insurance plan with an adequate amount of coverage is preferable to choosing multiple plans. Opting for multiple term insurance policies would only lead to more financial strain and would not be economical. Certain term insurance policies also provide the additional benefit of spousal cover within the very same plan. A singular term plan can even cover both you and your spouse, thus eliminating the need for multiple term plans and additional, unnecessary expenditure.
Ignoring riders
Riders are essential add-ons to your term insurance policy. As opposed to purchasing a completely new insurance plan to provide coverage against specific diseases/conditions, a rider is the economical alternative to securing an enhanced amount of coverage. There are a variety of riders you can opt for, including Critical Illness Benefits, Surgial Care Riders, Accidental Death Benefit Riders, thus taking care of a broad variety of needs.
Not conducting enough research
The advent of the internet has given consumers the accessibility to browse through and compare products before making up their minds. One should take advantage of this easy accessibility to compare the various plans available, their respective rates, coverage, benefits and then make an informed decision. Not conducting enough research could lead to you purchasing a plan with higher rates, an inadequate amount of coverage or one that does not align with your family's needs.
Conclusion: Keeping in mind the above pointers, you can choose a term plan tailor-made to your needs. A lucrative term plans in the market right now is the iSelect+ Term Plan by Canara HSBC Oriental Bank of Commerce. What sets this plan apart is the scope of choice that it provides with options like whole life coverage, spousal coverage, and multiple premium payment options. And that's not all; it also provides a return of premium option, wherein you get all your premiums back if you outlive the policy term!
