Term insurance is a type of life insurance that provides financial support to the main income earner or breadwinner’s family in the case of his/her premature demise. The support is in the form of a monetary payout (or sum assured) given to the family members in a lump-sum or monthly instalments.
Term insurance is bought by the main earner (called the policyholder) for his/her loved ones (called beneficiaries/nominees) in exchange for monthly, half-yearly or yearly sums called premiums.
Most individuals buy a term policy because it provides extensive coverage at affordable premium prices, which makes it the ideal solution for their families. Despite the multiple term insurance benefits, when the time comes to buy a term insurance policy, buyers make mistakes and end up getting underinsured or over-insured.
However, learning how to identify where you can go wrong can help you avoid these common mistakes while you buy term insurance.
1. Buying insufficient term insurance coverage
Most people get term insurance without assessing their financial needs. This haste can leave them with the wrong term policy and, in most cases – either over-insured or underinsured. In the former, you end up paying more premiums than required, and in the latter, you get an insufficient term policy. Thus, before you buy term insurance, it is essential to assess your present and future financial responsibilities. You can do this by considering:
- The number of family members dependent on you
- Your family’s lifestyle needs and goals Your current loans/liabilities (such as credit card bills, home loan, car loan, etc.)
- Your liquid assets (assets you can quickly convert and get money for) such as investments, real estate, funds, and savings, etc.
- Your annual income/earnings
- The inflation rate, 20-30 years from now
Financial experts recommend getting term insurance 8-10 times your annual income. You can also use our term insurance calculator at Edelweiss Life Insurance to get an idea of the amount of coverage you need.
2. Compromising on term insurance benefits to save money
As term insurance plans are affordable, it can be easy to focus on searching for one that fits your budget and sideline the benefits offered by them. Looking for a cheap policy can save you money in the present but end up giving inadequate coverage. Instead of focusing only on premium prices, check to see if the term plan gives you sufficient protection. Look for the policy price that:
- Offers riders (extra advantages) such as:
o The accidental death rider gives you an additional amount over and above the base sum assured in the event of your demise due to an accident.
o The waiver of premium rider waives off the payment of future premiums in the event you get diagnosed with a life-threatening disease or suffer from an injury of a permanent and total nature.
o Any other rider, discounts, offers, etc.
- Has flexible premium payment options
3. Waiting too long to buy term insurance
Another mistake frequently made by buyers is waiting too long to buy term insurance. When you are young and healthy, insurance can feel like a far-fetched need, which can delay your decision to get term insurance. However, as you become older, it becomes costlier to buy a term plan, and you end up paying higher premiums. This is because the risk of your demise and your family making a claim increases, which, in turn, increases the insurer’s liability. That is why it is crucial to buy term insurance as early as possible.
4. Keeping relevant personal information from the insurer
When you buy term insurance, it is essential to disclose all relevant information about you to the insurer to the best of your knowledge. Your insurer will always ask questions about your family’s medical history, your underlying health conditions, your lifestyle habits, your total income, and whether you have previously purchased any policies. All these details impact the premium price of the term policy and ensure your claim is accepted when the time comes. So, for instance, if you have a high risk of developing a lifestyle disease or smoke and drink alcohol from time to time and hide that information from your insurer, it can reject your claim on the grounds of non-disclosure.
Zindagi Plus from Edelweiss Life Insurance
With Edelweiss Tokio Life Insurance, you can find a comprehensive and customizable term plan - Zindagi Plus. The Edelweiss Tokio Term Plan offers you the following term insurance benefits:
- The payment of the death benefit even for your demise due to a pandemic (including COVID-19)
- A cover amount of up to ₹99,99,000 without any medical tests/underwriting
- 4 riders for enhanced protection of your loved ones:
o Accidental death benefit rider that pays an extra amount equal to 100% in addition to the base sum assured to your loved ones in case of your demise due to an accident
o A permanent total disability rider that gives you an extra rider amount equal to 100% in addition to the base sum assured in case you develop an injury of a permanent and total nature due to an accident
o Critical illness rider that gives you a lump-sum amount equal to 100% in addition to the base sum assured in case you are diagnosed with a critical illness from one of the 35 illnesses listed in the term plan. It also waives off your premium payments until you recover
o Hospital cash benefit rider that gives you daily hospital cash benefits for additional expenses in case you are hospitalized for an illness/injury
It can be easy to make these mistakes if you buy the first term plan you come across to save the time and effort of searching. However, it is advisable to compare term insurance plans to avoid making such mistakes and find the best term plan in India. Comparing different policies can help you save on premiums and get the best deal. It also makes you aware of the various riders, benefits, and term insurance tax benefits given on term plans.
Neha Panchal - Financial Content Writer
Neha used to be an Engineer by Profession and Writer by passion, which is until she started pursuing full-time writing. She's presently working as a Financial Content Writer, with a keen interest in all things related to the Insurance Sector.