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While term plans are the simplest life insurance plans, buying one blindly may lead to untoward losses. A term insurance is a very important financial investment as it helps secure the financial future of your loved ones. However, if you buy a policy which is not aligned with your needs, you will be stuck with a policy that will not give you the expected benefits. Therefore, it is very important to make a well informed purchase when it comes to term insurance policies. So if you want to buy the right term plan for your loved ones, make sure you avoid these common mistakes:
Buying a Term Plan with Insufficient Cover
The main purpose of buying a term plan is to cover the expenses of a family in the event of the untimely death of the policyholder. However, if the sum assured is inadequate, the family members will end up struggling for their survival despite the insurance. Hence, it is very important to ensure that the sum assured in enough to sustain the current lifestyle of your family. Ideally, a term plan sum insured should be at least 10 times your annual income. While this amount doesn’t guarantee complete financial protection, it will at least provide some buffer time to your family to decide the next course of action.
Procrastinating
Most people don’t think about insurance when they are young and healthy. Ironically, the best time to buy a term plan is when you are healthy and young. So ideally, you should buy a life insurance plan as soon as you begin earning. However, most people end up procrastinating until they have reached the middle age. Delaying insurance purchase will be a problem as the premiums will be significantly higher when you get older. Hence you will be unable to buy sufficient coverage when you need it the most.
Choosing a Term Plan for Short Terms
This is perhaps the most common term insurance buying mistake. Many individuals opt for cheap or short-term plans in order to save some money on the premium. However, in the long run, this will end up costing them more. For instance, if you buy a policy at the age of 25 for a term of 10 years, you will need a new plan at the age of 35. However, by this time, the premium will shoot up considerably. Moreover, if your health declines due to some unfortunate reason, insurance may be denied altogether.
Withholding or Misrepresenting Information
When you buy a term insurance policy, disclosing all information correctly is very important. Withholding or misrepresenting information of any kind will lead to dire consequences. An insurance company may declare the policy null and void if it learns of any undisclosed or misinterpreted information.