Life insurance is important to protect your loved ones from uncertainty. It ensures that your family does not face financial distress in your untimely absence. A term insurance plan is a popular and affordable life insurance cover.
A term plan is a type of life cover that pays the benefits to your nominees if an unfortunate event occurs during the policy term. As these insurance policies do not offer any survival or maturity benefits, you can avail of a higher sum assured (SA) at a reasonable premium.
However, term insurance may seem overwhelming and the large availability of plans may confuse you. Here are six common errors you should avoid while purchasing a term life insurance:
Getting inadequate coverage
The primary objective of a term plan is to provide economic security to your family in case of an untoward incident. Therefore, you must avail adequate coverage to ensure they pay for their regular expenses and are able to meet their life goals in the future.
A common mistake is that you may invest in a term plan, which has an insufficient cover. Such a plan will not suffice your family’s requirements. It is recommended that you buy at least eight to ten times your yearly earnings. While determining the SA, consider the current lifestyle, future expenses (with inflationary rise), and outstanding loans (if any). If you find this intimidating, you can take the assistance of a human life value calculator, which can help you make the right choice.
Investing for a shorter duration
You may opt for a term insurance plan for a short tenure to reduce the premium. However, keep in mind that if you buy a shorter plan, the coverage may cease when your family may require security. Additionally, if you purchase another policy later, you will need to pay a higher premium, as you may need more coverage because your responsibilities increase with age. It is advisable to buy a term plan that offers coverage at least until your retirement. Moreover, buy at an early age, so that you can avail higher SA at a nominal premium. Take the help of an online term plan premium calculator to find adequate coverage without causing any liquidity crises.
Delaying the decision of purchasing
When you are young, you think that you do not require life insurance; however, an unexpected circumstance can arise without any warning. Some people postpone their decision until they marry or have children. However, it is beneficial to avail term insurance at an early stage of life, as the premium is lower. You can also buy a term plan that allows you to raise the SA as your responsibilities increase over the years. You can use an online term plan premium calculator to know the cost.
Withholding relevant information
You may be tempted to hide important details about your health to reduce the premium. However, never do this, as it could be the basis on which the insurer rejects a claim, which your nominees will file in the future. Such a situation will leave them financially vulnerable.
Not buying online
Compared to an offline term plan, the premium of an online policy is significantly lower. This is because insurers eliminate agents’ commissions and decrease administrative expenses and other overheads. Contrary to belief, the online procedure to buy term insurance is quite simple, secure, and quick.
Using it to reduce the tax liability
Section 80C of the Income Tax Act, 1961 provides term insurance tax benefit on the premium up to INR 1.5 lakh per annum. Many people buy term insurance only to lower their tax liability. Do not make this mistake, as a term plan is a highly beneficial tool to ensure the financial security of your loved ones.
Term insurance acts as a cushion for your family in your sudden absence. Do not be intimidated and buy a term plan without further delay. Avoid these errors and maximize the benefits for your loved ones.