Planning To Buy A Term Insurance Policy? Avoid These 7 Mistakes
A term insurance will act as a financial cushion for your family and secure them financially in case you pass away, before creating enough wealth. Given the long-term impact it has on your family’s comfort and financial stability - it is very important that you get everything right. From selecting the right insurance company to calculating the cover amount to choosing the features and benefits - make sure you do the due diligence & make careful choices. Because a slight mistake on your part now could cost your family dearly in the future.
In this article, we take a look at a list of some common mistakes people make while buying term insurance - the ones that you should avoid.
1️⃣ Not buying the policy at the right time
Term insurance premiums are charged based on the age when you start the policy and then remain constant throughout the policy term. The general rule of thumb is - the earlier you buy, the lower you'll pay annually as well as over the entire policy term. However, this doesn’t mean you must buy term insurance as soon as you start earning. Purchase a policy only if you have taken a large loan, or have financial dependents.
2️⃣ Buying an inadequate cover
While deciding the cover amount for your term insurance, you should not depend on generic thumb-rules like ‘20X/ 15X your annual income’ or simply buy the popular 1 Crore policies available today. These might seem like large numbers at the moment - but, might not be sufficient for your family’s long-term plans and goals. Instead, you should do a detailed calculation, consider your financial goals, loans and liabilities, etc., and then find out the exact cover amount your family might need.
Alternatively, you could simply use a good term insurance calculator, and get the perfect amount you’ll need to take.
3️⃣ Not evaluating the MWP addendum
As per the law, your term insurance is considered part of your estate & its proceeds are used to settle off the dues first in case of any outstanding loans and liabilities before it reaches your nominee. You can avoid this by taking your term insurance under the Married Women’s Property (MWP) Act - if you’re making your wife the nominee. This will ensure that the claim amount reaches your wife & children before it reaches any of your creditors.
Please note that you can add the MWP addendum only at the time of taking the policy. And once added, it cannot be changed or removed by anyone (including yourself) and it stands valid even in the case of a divorce.
4️⃣ Choosing inappropriate customizations
Most term insurance plans offer multiple options to customise features based on your family’s unique needs and priorities. For instance, selecting the lump sum claim payout option when you know that your family won’t be able to manage a large sum of money or not opting for limited pay even when you expect an unstable income in the future could make it difficult for you and your family to manage the plan and the claim. These mistakes might seem negligible now, but they could cost you and your family in the long run.
5️⃣ Purchasing accelerated riders
If you’re planning to buy a critical illness or accidental disability rider along with your term insurance base plan, make sure you ask the insurer about the type of rider available with the particular plan you’re looking at.
These riders can be accelerated (not comprehensive ones) - meaning the Rider amount is simply paid out as an advance from your base claim amount. Meaning, if you use the rider for a certain amount, your base term sum assured will be reduced by that amount - and when your family makes a claim for the death benefit - the amount might not be sufficient for them.
6️⃣ Buying from an insurer with the highest claim settlement ratio
The claim settlement ratio shows the total number of claims settled by the insurer out of the total number of claims received in a given year. Many people think that they can find out if an insurance company is reliable, just by looking at its claim settlement ratio. However, a good claim settlement ratio does not surely indicate that the insurer is good & efficient in settling claims. In other words, it does not guarantee that Insurer will settle your claim or that your family will have a smooth claim settlement experience.
Instead - we recommend that you rely on Beshak⭐Ratings - the first ever unbiased, data-backed rating of the top term plans in the country. Beshak⭐Ratings will give you a good understanding of not just the quality of the product you’re buying - but also an insight into the claims experience as well as the customer service quality of the insurance company.
7️⃣ Hiding or making incorrect disclosures/ declarations
Your declarations in the proposal form are the basis on which the insurer decides whether or not they can cover your life - and if yes, at what cost. If you make incorrect or incomplete declarations - the insurer will not be able to judge the risk properly. As a result - when the time of claim comes - they can even reject the claim.
The best and only solution to avoid this situation is to always make truthful and complete declarations to the insurance company. Only if you’ve been 100% truthful - will you be ensured that your family’s claim would be settled without any hassles.
That is all from our side. If you have any further questions related to term insurance, you can post them on the Beshak Insurance Forum and get answers from insurance experts, directly!
Planning to buy term insurance but confused about which customisation options to pick and which to skip?
Check out Beshak TruMatch - the first-ever term insurance recommendation engine that recommends the right customizations you must pick so that your term plan is perfectly tailored to your family’s needs.
- Purchase a term insurance policy only if you have taken a large loan, or have financial dependents who rely on your income for their expenses.
- Calculate the appropriate cover amount for your family and buy a policy for that amount.
- Sign the MWP addendum at the time of buying the policy to ensure your wife and children are always the first beneficiaries of your Term plan.
- Select the right customisation options as per your and your family’s suitability.
- Buy an 'accelerated' rider judiciously.
- A higher claim settlement ratio doesn’t guarantee your family will receive the claim.
- You should not hide or make incorrect declarations in the proposal form.
Aakansha is a Content Ideator and Writer at Beshak. With her easy-to-understand content, she makes insurance simple for everyone. She comes with a strong background in finance and commerce and wants to help families make positive insurance decisions that are good for a lifetime.