Providing your family with the financial protection to manage the cost of emergencies is the utmost priority for the sole earning member of the family. If any unexpected mishap was to take place in your absence, you would want your loved ones to be able to deal with the mishap without facing any financial uncertainty.
One way you can ensure this is by investing in a good term plan. While this plan has many benefits, people still commit many mistakes when they are purchasing the policy for the first time. If you are looking to purchase the plan for your family, read on to know the mistakes that you should avoid while purchasing the plan.
What is term insurance?
A type of life insurance policy, term insurance provides financial assistance to the dependents of the insured. As the name suggests, term plan provides this assistance for the time period stipulated in the policy. If the policyholder were to pass away during the policy term, the insurer will give the sum assured amount to the family of the policyholder. This amount can be used by them to secure a financial safe future for them.
Mistakes people commit when purchasing the policy
Even though many people are getting educated about the benefits of term insurance, there are still many mistakes that get committed by people, especially by first-time buyers. Listed below are a few mistakes and how to avoid them:
- Opting for a plan with shorter duration
The objective of term insurance is to provide financial assistance to the dependents of the policyholder. As this assistance is provided in the event of the policyholder’s untimely demise during the policy term, it would make more sense to opt for a policy with a longer duration. If you were to purchase a shorter term and survive it, that would be disadvantageous, especially if you were to pass away after the term has ended, which would leave your family without any financial protection. Which is why you should opt for the plan with the longest term possible.
- Not researching enough
One of the benefits of buying term insurance online is that you get to compare products offered by different insurers and zero down on the policy that suits your requirements. However, in many instances people tend, to buy the policy in a hurry without knowing its suitability. This could lead you to purchasing the wrong policy in the first place. It is always better to do some research beforehand which would help you in making the right decision.
- Delaying the purchase
It is advised to invest in a term insurance at the earliest due to the low-cost factor. As you age, your body goes through changes and develops ailments. This directly impacts on what you pay towards the term insurance. When you buy at a younger age, your body is fit and healthy enough to cope with diseases and illnesses, which means you can enjoy a reduction in the premium of the policy.
- Avoiding investing in the policy
A major concern that many people have is the tax factor. There is a misconception that term insurances get taxed quite heavily. There are term insurance tax benefits that you can enjoy. Annual premium payments of up to Rs.1.5 Lakhs are eligible for tax deduction under Section 80C. Similarly, death benefit is also eligible for tax deduction under Section 10(10D) of the Income Tax Act.
- Choosing a low coverage plan
The notion that if you go for a term insurance with lesser coverage, you will have to pay less, is actually quite dangerous. A lower coverage amount would be insufficient for your family if there are major expenses planned in the future. This means your family will have to rely on external sources of money to be able to cover those expenses. Term insurance allows you flexible options when it comes to premium payments. This allows you to manage other expenses without burdening your income.
- Not understanding the riders
In a term insurance, you get to enhance the coverage of the policy by including riders. When you purchase this policy, you can include riders such as accidental death benefit rider, disability rider, and critical illness rider. However, these riders also increase the cost of the policy. Make sure that you do not add all of the riders unless actually required. Similarly, make sure you do not forget the riders you want when customising your policy.
- Misleading the insurer
When purchasing the policy, your insurer requires details, such as your lifestyle habits and medical information. Giving false information to avoid paying higher premium can cause problems in the future, especially during claiming compensation. If the insurer finds out that you have provided falsified information, you could get fined, or it could even lead to the cancellation of the policy.
These are some of the mistakes that you can avoid while purchasing term insurance. You can get in touch with your insurance advisor to get in depth information about it. If you plan on purchasing this insurance policy, use the term insurance calculator to get an idea about the cost of the plan.