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9 common mistakes to avoid while buying term insurance

9 common mistakes to avoid while buying term insurance

Term insurance provides a financial cushion for the family. If the policyholder passes away during the specified term , the beneficiary receives a death benefit . This amount is usually not taxable and provides the family with financial stability and comfort in the long run. But, choosing an insurance plan requires research. One must pick the right provider, choose the necessary benefits, and read the terms carefully. One must also avoid making mistakes when buying term insurance.

Not buying the right policy at the right time
While term insurance premiums remain consistent across the policy duration, the amount is calculated based on the policyholder’s age when applying. That’s why one should consider buying early. It results in a low annual expense across the policy term and higher savings. Still, that does not mean individuals must invest in a term insurance plan immediately after they start earning. Buying a policy is advisable only if a person has financial dependents or has taken a huge loan.

Buying for a short duration
While buying term insurance is a wise decision, one must choose the tenure carefully. Many experts recommend buying a long-term policy that remains active into one’s golden years. Sure, the shorter-term plans have affordable premiums, but the amount increases when renewing the plan down the line. Moreover, shorter-term insurance usually becomes useless in times of need.

Ignoring the riders
Many new-age insurance plans come with added benefits or riders. Two common riders are accidental death benefits and critical illness coverage. Sadly, only a few consider these because they increase the plan’s total cost. But they fail to see that the add-ons offer extra financial security. So, one should evaluate and choose the ones that best suit their needs.

Opting for an insufficient sum assured
A person’s term insurance plan must provide adequate financial coverage for their family if something happens to them. The amount needed depends on the individual’s financial status, the family’s educational needs, and lifestyle. If someone is the family’s sole breadwinner and does not choose the right amount, it can be a big mistake. In this scenario, the family may face financial hardships and struggle to maintain their lifestyle. The lower sum assured won’t last long enough to support the family until they find an alternate income stream.

Prioritizing price over coverage
Plans that provide a huge death benefit are usually expensive, but that does not mean one should settle for less. The cheapest available plan might not offer all the necessary benefits, causing one’s dependents to face financial struggles later. A little research might help one find the correct insurance plan with affordable premiums and a sufficient sum assured. If someone has to go for the cheapest plan, they should at least sign up for a few add-ons to receive suitable coverage.

Failing to compare different policies
Many term life insurance plans are available, each with different tenures and benefits. Comparing them is crucial to finding the best policy. Skipping this step may result in a higher premium and limited coverage. If someone finds comparing plans tedious, they can use online tools. Many websites list popular plans from different insurance companies and allow users to compare their coverage amounts, premiums charged, and features to help them make an informed selection.

Hiding information while applying
The declarations in the policy application form the basis for the insurer to determine whether they can cover one’s life. They also help decide the premium amount. If one enters incomplete or incorrect details, the insurer cannot assess the risk properly. That’s why they tend to reject the claims of many policyholders. To avoid this situation, one should be fair and truthful in their declarations. Being open and 100% honest with the insurance company will ensure the family receives the claim amount without hassle.

Picking inappropriate customizations
Several insurance companies let people tailor their term insurance plans to cater to the family’s unique needs and priorities. Sadly, many make mistakes when customizing their plan. For instance, they choose the lump sum payout option even after knowing their family cannot manage a large sum of money. Similarly, some choose the limited pay option even after knowing an unstable income in the future could pose challenges for their family. These mistakes may seem negligible, but they could cost the family severely in the long run.

Not reading the policy terms
Before buying term insurance, one should read the terms and conditions thoroughly. Omitting this step can be costly. Reading the policy terms lets one know exactly what the plan covers. If someone has any confusion or queries regarding any clause in the policy, they can ask the agent immediately for clarity.

Term insurance acts as a financial security tool for the family. It gives the policyholder peace of mind as they know their family will be safe even if they are not around. But one should be careful when buying term insurance and avoid making mistakes. One should also review the coverage sum after regular intervals to ensure it is adequate for the family. This is an important step because the family’s financial needs may change over time.

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