This piece looks at some of the common mistakes one should avoid while choosing a term insurance plan.
Insufficient amount guaranteed
The point of buying a term insurance policy is that if the insured dies, his/her family can continue to live well without worrying about finances. What if the insurance proceeds do not continue for a long time after the death of the insured? This situation can occur if the guaranteed amount is not carefully evaluated based on the needs of the future family.
Naval Goel, founder and CEO of PolicyX.com, said, “The prevalent mistake most people tend to make is taking vague term insurance coverage that fails to meet their future financial requirements. This generally occurs when buyers do not calculate their insurance needs, taking The inflation rate and many dependent factors are carefully considered.
Make the price the sole determinant of purchasing the policy
Experts say it is best not to make price the only determining factor while buying or choosing a policy.
Piyush Trivedi, Co-President of Kotak Life Insurance, said, “The main factors that should go into choosing an appropriate term insurance plan are the claims settlement ratio, the suitability of the policy benefits to the individual’s needs, the company’s reputation and financial standing. These factors help support the family during Claim process.
Delay in purchasing term insurance
When you buy a term plan, you are buying protection against the possibility of death. As a result, the higher the risk, the higher the premium you will pay to cover those risks.
Sajja Praveen Chowdary, Head of Life Insurance, Policybazaar.com, said, “If you buy NSInsurance for 50 lakh at the age of 25, you can pay less than NS5000 per year. When you turn 35, the same policy will soon cost you NS9000 per year. As a result, delaying your purchase will have a direct impact on the amount you pay. Furthermore, since you have to pay a premium every year for the life of the policy, failing to secure it at a reasonable rate could be an expensive mistake.”
Giving incorrect information
People tend to make mistakes by hiding important information about their medical history, financial situation, etc. This information directly affects the issuance of the policy and the settlement of claims. Chowdhury said, “While it is true that pre-existing illnesses and lifestyle behaviors such as smoking and drinking can increase term insurance premiums, not reporting them when purchasing a policy is an even worse mistake. For example, assume that a policy holder dies of a health condition. It was present with him at the time the policy was purchased. In such a situation, if he does not disclose such pre-existing diseases, the insurance companies may reject the claim altogether.”
Choosing a policy that does not require medical examinations
Avoiding medications is one of the biggest mistakes. Medicines ensures that correct and complete health details are captured and taken into account while issuing the policy. There will be no interruption in the claim stage regarding non-disclosure, incomplete disclosure, etc. Besides, Trivedi said one can request medical reports from the insurance company for reference and records and use them for regular-even routine medical examination.
Buying a tax saving policy
Life insurance policies provide the great benefit of saving up to NS1.5 lakh under Section 80C of the Income Tax Act. According to Section 10 (10d) of the Income Tax Law, the guaranteed amount plus any bonus (i.e. policy proceeds) paid at maturity or upon death of the policy holder is completely exempt from tax, subject to certain terms and conditions.
However, tax savings should not be the primary motivation for purchasing a term insurance policy. However, it is common to purchase insurance as a last-minute attempt to save on income taxes. This step taken by many is again a huge mistake because when the goal is tax savings, all accounts tend to focus on the premium to optimize tax expenditures.
Death compensation is paid to the candidate only if the policy holder dies during the term of the policy. Unless you choose Term Insurance with Return of Premiums (TROP Plan). However, there is no accrual benefit payable if the policy holder continues that period. He only receives the total premium that he paid to the insurance company during the policy period. People often make the mistake of choosing a shorter term/coverage to save money on premiums.
However, let’s say you purchased a policy for a shorter period and ended up with a policy longer than the term of the policy; In this case, you need to renew your existing term policy or buy a new one, likely at higher premium rates.
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