What is term insurance?
It is the kind of life insurance that gives you coverage for a specified period. It secures your family’s future in case an unfortunate event of death occurs to you. It acts as an income replacement in your absence. Your family’s future is of utmost importance and cannot be at stake at any point of time, buying a term insurance becomes a crucial decision and must be done carefully if you want to get the most out of it.
Create an estimate of your financial liabilities like household expenses, children’s education, parent’s medical check-ups, family weddings, retirement expenses, etc. Compare these expenses to your savings and understand where you are falling short. Only then will you be able to select a plan that may fill the gap between your expenses and savings effectively while not burning a hole in your pocket.
Here is a guide to help you manage your finances.
Inaccurate information, buying the cheapest policy, buying it just to save tax, delayed purchases are some common mistakes leading to inadequate cover. Here are certain mistakes that you should avoid while buying a term policy.
- Buying insufficient cover
Many people fail to consider current expenses such as home loans, car loans, personal loans, credit card bills, utility bills and end up buying insufficient cover. Moreover, they forget to account for inflation, future expenses like children’s education etc. This should be completely avoided. An appropriate way to estimate the right amount of life cover to meet your family is by following a thumb rule i.e. your policy’s sum assured should be twelve times your yearly income. For example, if your annual income is Rs10 lakhs, your policy cover should be Rs 1.2 Crore.
Learn more about your ideal life cover here.
Another mistake is choosing a lower cover just to keep the premium amount low. This means getting inadequate sum assured, which would ultimately result in your funds drying up quickly. Remember, the aim of a term plan is to help your family, in case something happens to you. An insufficient cover could affect their financial stability.
- Choosing shorter policy terms
Sometimes just to save the premium amount you might end up opting for shorter terms to pay lesser premiums. However, this decision could cost you more in the long run. Why? Because once a policy ends, you will have to buy a new one. As you get older, the cost of your premium will increase making it more difficult to afford a plan. Also, if you aren’t in the best of health then it’s possible that you may be denied of getting a new term insurance plan.
And so you should buy a term plan keeping the future in mind. Consider all parameters like your age, health condition and your family expenses. Buying a term plan at an early age is a wise decision.
- Inaccurate information
Incomplete or inaccurate disclosure of information, while buying a term plan is another mistake that can have a negative impact. If you keep your medical history a secret from your insurer, and the cause of your death is traced back to an undisclosed health condition, there are chances that your claim could be rejected and the policy would be declared null or void. It is recommended that you fill the application form carefully. Ensure information like your age, health condition, personal habits, pre-existing diseases etc. are accurate discrepancies, which will be easier to make claims.
- Delayed purchase
People often think that they do not need insurance when they are young as they are healthy and fit. However, in your 30s, your responsibilities increase and that’s when you realize you need a term insurance plan to secure your family’s future. But at this point your insurance premium is likely to increase. This is because premium increases as you get older and this additional amount which could have been avoided will eventually add to your expenses.
- Not buying online
Online term insurances are cheaper as compared to regular protection plans. It is also quite easy to compare term insurance plans online and make an informed decision. Term insurance online can now be purchase in a click.
Calculate your premium here: https://www.edelweisstokio.in/total-secure-plus/buy