This article examines some common mistakes to avoid when choosing a term insurance plan.
Insufficient sum insured
The goal behind purchasing a term insurance policy is that if the insured dies, their family can continue to live well without worrying about finances. What if the insurance proceeds do not last long after the death of the insured person? This can happen if the sum insured is not carefully assessed against the future needs of the family.
Naval Goel, Founder and CEO of PolicyX.com, said: “The common mistake the majority of people tend to make is purchasing term insurance coverage that does not meet their future financial needs. This usually happens when buyers do not accurately calculate their insurance needs, given the rate of inflation and several dependent factors. “
Make price the sole determinant of purchasing a policy
Experts say it’s best not to make price the sole determining factor when purchasing or selecting a policy.
Piyush Trivedi, Co-President of Kotak Life Insurance, said: “The key factors that must be taken into account in choosing the right term insurance plan are the claims settlement rate, the adequacy of the policy benefits to its needs, the reputation and the financial situation of the insurer. These factors help support the family during the application process. “
Delay in purchasing term insurance
When you buy a temporary plan, you buy protection against the possibility of death. Therefore, the higher the risk, the higher the premium you will pay to cover that risk.
Sajja Praveen Chowdary, Head of Term Life Insurance, Policybazaar.com, said: “If you buy a ??50 lakh term insurance at the age of 25 you can pay as little as ??5,000 per year. At 35, however, the same policy will cost you almost ??9,000 per year. As a result, delaying the purchase will have a direct impact on the amount you pay. Also, since you have to pay the premium every year for the life of the policy, failing to lock it in for a reasonable price could be a costly mistake. “
Giving incorrect information
People tend to make mistakes by hiding crucial information related to their medical history, financial situation, etc. This information has a direct impact on the issuance of the policy and the settlement of claims. Chowdary said: “While it is true that pre-existing illnesses and lifestyle behaviors such as smoking and alcohol can increase your term insurance premium, do not report them when purchasing a. font is an even worse mistake. For example, suppose the insured dies due to a health problem that existed with him when the policy was purchased. In such a case, if he had not disclosed such pre-existing conditions, the insurers could reject the claim entirely. “
Choose a policy that does not require a medical examination
Avoiding medical exams is one of the biggest mistakes. Medical services ensure that correct and complete health details are entered and considered when issuing policy. There would be no disconnection at the claim stage related to non-disclosure, incomplete disclosure, etc. In addition, Trivedi said one could request the insurer’s medical reports for his reference and records and use them for their regular medical check-up. until the routine.
Buy a contract to save tax
Life insurance policies offer significant tax savings of up to ??1.5 lakh under section 80C of the Income Tax Act. And, in accordance with Section 10 (10D) of the Income Tax Act, the sum insured plus any bonus (i.e. policy proceeds) paid on maturity or on death of the policyholder are completely tax-free, subject to certain conditions.
However, saving taxes shouldn’t be your primary motivation for purchasing a term insurance policy. Still, it’s common to purchase insurance as a last-minute attempt to save on income tax. This step taken by many is once again a big mistake because when the goal is to achieve tax savings, all calculations tend to focus on the premium to optimize the tax output.
Limited occupancy time
The death benefit is paid to the nominee only if the policyholder dies during the term of the policy. Unless you choose term insurance with refund of premiums (TROP plan). However, no maturity benefit is paid if the policyholder survives this period. He only receives the entire premium he paid to the insurer during the term of the policy. People often make the mistake of choosing a shorter tenure / insurance term to save money on premiums.
However, suppose you buy a policy for a shorter period and end up outliving the term of the policy; in this case, you must renew your existing term policy or purchase a new one, potentially at higher premium rates.
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