With the ever-increasing cost of living being driven high due to inflation and other factors, the emphasis on savings and investing is always high. While growing one’s wealth should be the top priority, so should be providing financial protection to their loved ones from risks.
This is where purchasing term insurance for you and your loved ones can be beneficial. However, people tend to make mistakes when they are purchasing their first insurance policy. What are the mistakes that people commit when purchasing their policy? How can they be avoided? Read more to find out.
What is term insurance?
Term insurance is a type of life insurance policy, in which the insurer agrees to financially compensate the dependents of the insured. If the insured passes away during the policy term, the insurer will pay an amount known as the sum assured to the family of the insured. This amount will help them remain financially stable and be protected from life risks.
What mistakes do people commit when purchasing this policy?
While more and more people are getting educated about this policy, however, there are still common mistakes being committed when it comes to purchasing this policy. These mistakes include:
- Purchasing the plan late
To be able to provide the best financial security to your family once you are gone, it is vital to buy this policy at an early age. The ideal age is suggested to be between 27 and 30. However, many people do not tend to buy it early on due to different factors. An incident later on in life could drive them to purchase the policy. However, purchasing the policy at a later life stage means paying more for it. When you purchase this policy at an early stage, the cost is lower and affordable.
- Not comparing policies
One good thing about purchasing your policy online is that you get to compare what each insurer is offering you. This helps you in making an informed decision related to your policy. However, due to the lack of awareness, most people do not compare policies before purchasing one. This could lead them to buy either the wrong plan or they could end up paying more than expected. It is always advised to compare and buy.
- Opting for a cheap policy
When you are young, going for a low-cost policy would make sense as you have just started earning. Also, the only dependents on your income are your parents. However, priorities change once you get married and have children. This increases the need to have a better policy. There are instances, however, where people continue with their low-cost policy and get a smaller sum assured. This could be disadvantageous for the future of your loved ones. Switching or upgrading the policy could help.
- Not increasing the sum assured
As mentioned in the previous point, a low-cost policy means a lower sum assured. A lower sum assured might work if you do not have dependents. However, if you have many dependents, it would be prudent of you to increase your sum assured. Most people are either unaware of this provision or they do not tend to in order to save money. This should be avoided. You should increase the sum assured of your policy at a critical life stage.
- Buying a short-term plan
The perception that long-term policies cost more than short-term policies drives many people toward purchasing the latter. Opting for a short-term policy can be a risky move. While you may find it to be cost-effective, the sum assured that your loved ones would get from it would also be less. Not to mention the fact that if you survive the policy term, there are no maturity benefits at the end of it. This means a waste of money. It is better to opt for a long-term policy for longer protection.
- Not understanding riders
In this policy, you have the option of including different riders to enhance the overall coverage. However, the inclusion of these riders increases the cost of the policy. It is vital that you include only necessary riders to keep the cost of your policy under control. On the other hand, many people tend to overlook the term rider. This can cause problems during emergencies as you would be robbed of the financial assistance your policy could provide to deal with them.
- Not making an online purchase
When you purchase your policy online, you get to enjoy benefits, such as saving money, transparency, tracking your application, etc. However, many people still prefer to purchase their policies through agents. Agents tend to charge more to earn a better commission. Agents at times also sell you the wrong plan which can be harmful in the future. To avoid being misled, you should purchase your policy online.
- Not disclosing medical history
Your insurer will make you undergo medical check-ups before you purchase the policy. Your medical condition decides the cost of the policy. However, if you hide any pre-existing conditions, your insurer might deduct the actual cost of the policy from the sum assured. Always maintain transparency.
- Not updating nominees
When you are purchasing your policy, the natural choice for a nominee would be either your parents or your partner. However, it is always advised to update your nominee after a few years. Not updating your nominee could cause you to complete the formalities again in the event of the nominee passing away during the term of the policy.
- Switching irresponsibly
If you find your existing plan to be insufficient, the obvious option would be to cancel it and switch to another plan. However, you should keep in mind that purchasing a new plan would cost you more. Always study the plan before doing a switch.
These are the mistakes you can easily avoid related to this policy. You can use the term plan calculator to make a better choice for your insurance needs.