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Mistakes to Avoid While Buying a Term Insurance Plan

Buying a term plan can be perplexing for many. Not only does it get tedious to understand policy factors that are uninteresting and complicated, but it also gets challenging to speculate benefits and land the right buying decision.

Understanding common mistakes when it comes to buying a term policy can help you make better-informed decisions.

A few mistakes you should avoid while buying a term plan are as follows:

Insufficient Coverage:

The primary objective behind opting to buy an insurance policy comes boiling down to building a strong financial backup for dependents reliant on you. Buying a term plan is no different. 

However, it often happens that a handful of policy seekers end up miscalculating their coverage requirements leading them to settle for a plan that comes with a low cover. To avoid this miscalculation, it is always recommended to settle for a plan that pays out 8 to 10X times your annual income.

Policy seekers can even opt for a larger coverage amount if they think it would fulfil their family requirements. However, settling for anything less might not prove to be much beneficial in the long run.

Nowadays, insurance companies assist you in understanding the coverage amount you should opt for using a human life value calculator. Not only will you get the accurate amount you should settle for, but it will also help you make the right decision based on your level of income and requirements.

Opting for Short Term Plan:

This is by far the most common mistake every policy seeker tends to make. Yes, insurance plans with shorter terms prove to be inexpensive, but in the long run, it will only make you realize the wrong decision you've made.

Here's an example to illustrate how opting for a short term plan is not beneficial to you. Let's suppose that Joe bought a term policy for 20 years tenure at the age of 25. Now, as per that plan, Joe is covered until the age of 45. However, heading into the filthy fifties, Joe realizes the need for extended coverage.

Now when Joe buys another plan at the age of 45, the premiums attached to it can drill holes in Joe’s pocket. Add increased premium costs to other expenses, and Joe’s financial burden goes up even more. Hence, it is always advised to opt for a plan that has you covered until you retire.

Embracing delays:

With loads of misconceptions in the air around insurance, many people often delay getting insured. This, however, is more likely to be a negative factor if you choose to get insured late in life.

One major misconception believed by most Indians is to opt for an insurance plan after reaching a certain age. Many people entertain no thoughts of buying a term plan until they turn 30 or get married and have a family. It is simple math, the earlier you get insured, the lesser premiums you’ll have to pay and the more benefits you can enjoy. 

Also, it is more likely to deal with lower back pain in your 30s than in your mid-20s. Hence, opting for a plan post 30 will decrease your chance of getting a plan that will provide you with a plethora of benefits. 

Non-disclosure of Health Status:

Buying a term plan without disclosing any health that you may suffer from comes with its fair share of consequences. Insurance companies make an extra effort to trace the death of the policyholder. 

If the cause of demise turns out to be a health condition that the insured hasn't disclosed, then that puts the insurer in place to refuse the claim. Running into such circumstances can prove to be a menace for the policyholder's family.

Not only will it add a financial burden, but it can also be emotionally draining for the family if things were to pan out that way. Hence, disclosing the right medical information is always advised to keep the bigger picture of the family's interest in mind.

Unwilling to Search for more Insurance Companies:

Knowing the options you have and how they benefit you plays a key role in making the right decisions regarding buying the right term plan. Policy seekers often make a mistake to put their trust in one reputed company, which blinds from them seeing what companies have to offer.

Policy seekers can open new doors to understanding how policy plans can match their financial requirements with a little research. Insurance companies understand the level of competition in the market and hence make room for plans to beat their competitors. With such increased competition in the market, policy seekers can find plenty of plans at extremely budget-friendly rates.

Hence, it is always advised for policy seekers to research, compare, and analyze the different options available to them and then make an informed decision to buy a term policy. 

Not Opting for an Online Policy:

Habits are hard to break, and behaviour is even harder. Policy seekers still tend to opt for the old school traditional way of buying an insurance plan by stepping into the insurance company's office or via an agent. Policy seekers are often sceptical about buying insurance plans online, and this mindset often puts them in a position to not enjoy an array of benefits that come with the online policy.

In today's day and age, almost everything can be purchased and sold online. Thus, investing with a reputable online insurance provider will only help policyholders to enjoy more benefits and added convenience to settle payments and get discounts.

Interpreting Insurance Plans as Investment:

A life insurance policy is brought to build a strong financial aid to assist the policyholder's family if the insured were to meet an unfortunate demise. It is not an investment where, on paying premiums, you will be bound to receive exponentially higher returns.

Hence, correcting that mindset and looking at insurance as a protection plan rather than a money-making investment can help you make the right decision on buying the right plan. However, insurance plans indirectly help policyholders enjoy a wide range of benefits, such as health rewards, tax benefits, maturity benefits, and more. 

Failing to understand the plan:

It is crucial for policy seekers to take the time out and step into that tedious process to understand what the policy is all about. Not many have the heart to read the terms and conditions clauses, but jumping to buy a policy without knowing the basics of the term plan will only lead to making poor buying decisions.

Once you study the plan, factors like coverage, premium cost, discounts, tenure, and many more aspects will drive you to make an informed decision. On understanding the plan, you will be in a position where you will think wisely, consider other factors, and then opt for a plan that best suits your requirements.

Having a term policy to your aid will always keep you on the safe side. The outcome of families having to bear a steep financial burden is eliminated when you are insured. Understanding the common mistakes is the first step to buying a plan that caters to your needs. Make informed buying decisions and have a secure future in place.   

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