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Mistakes to Avoid While Buying Term Insurance

Term insurance plans are the essence of life insurance. They provide the basic protection against the risk of premature demise. With the right coverage amount, you can secure your family against financial emergencies when you are not around. The financial assistance offered by the plan can help your family meet their everyday lifestyle expenses as well as fulfil the financial goals which you left behind.

Investment plans also act as tax-planning tools, as many avenues help reduce tax liability. There are different types of investment plans, and by choosing the right one, you can invest according to your needs and grow your savings.Read Less

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Written ByPalak Bagadia
AboutPalak Bagadia
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Palak Bagadia, Associate – Digital Marketing at Bajaj Allianz Life, with experience spanning content and performance marketing, recruitment, employee engagement in the BFSI industry.
Reviewed ByRituraj Singh
AboutRituraj Singh
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Rituraj Singh,With over 6.5 years of experience in the insurance industry, Rituraj Singh, Manager- Product & Brand Marketing at Bajaj Allianz Life Insurance overlooks new product launches, compliance, and brand projects, leveraging artificial intelligence and technology to enhance outcomes.
Written on: 7th July 2024
Modified on: 7th July 2024
Reading Time: 15 Mins
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A term insurance policy is an important addition to the financial portfolio for financial security. However, buying the plan should not be a random decision. It is better to do some research, understand your needs and then buy the right coverage. In fact, there are some common mistakes which are better avoided when buying the term policy. Let’s understand what these mistakes are.

 

Mistakes to Avoid While Buying a Term Insurance Policy?

 

Some of the common mistakes to avoid while buying a term insurance policy are as follows -

1. Selection of inadequate coverage

A term insurance policy provides sufficient financial assistance to your family only if the coverage is optimal to cover their financial needs. As such, choosing a limited sum assured defeats the purpose of a term plan.

What should you do?

Assess your financial needs, income and expenses, existing assets and liabilities and other factors to determine the adequate sum assured of the policy. You can use online term insurance calculators which help estimate the optimal coverage that you need.

There is also a thumb rule which says that your coverage should be a minimum of 10 times your annual income1. This gives a fair idea but you can use other methods too for calculating the suitable sum assured.

2. Opting for a short-term plan

A term plan covers the risk of premature demise only if the insured passes away during the chosen policy tenure. On survival till the end of the tenure, usually, no benefit is paid under basic term plans (in return for premium plans, however, the premiums are refunded).

To enjoy optimal coverage, it is advisable to opt for the maximum possible tenure under the term plan. Choosing a short-term plan is a mistake.

What should you do?

Nowadays, term plans also come with the option of whole-life protection. Under such plans, coverage is extended till 99 or 100 years of age. You can choose such plans for long-term protection.

3. Failure to compare multiple policies

There are more than a dozen life insurance companies in the market and each offers one or more types of term insurance plans. To find the right policy, a comparison is recommended. Not comparing the available plans might lead you to buy a policy with limited coverage and at a higher premium.

What should you do?

Thanks to the online mode, comparing term insurance plans has become easier. Compare the available plans online on the basis of coverage offered vis-à-vis premium charged and then choose the most suitable policy.

4. Non-involvement of online plans:

Online term insurance plans are also available which help you buy the policy quicker and, in some cases, you can also save on the premium. So, consider online plans too when buying term insurance.

What should you do?

Opt for online term plans and enjoy coverage at the earliest. Moreover, online plans are easier to buy and can save time.

5. Submission of inaccurate information

While buying a term insurance policy, hiding or lying about important facts about yourself might lead to claim rejection in the future. The insurance company underwrites your proposal based on the information entered in the proposal form. Incorrect or inaccurate information is not recommended.

What should you do?

Disclose all important details about yourself in the proposal form, even if it means that you might have to pay an additional premium or undergo a health check-up before buying the policy. This would help in avoiding future claim rejections. For instance, if you smoke or drink alcohol, inform the insurance company of the same.

 

Life Events for Which You Should Consider Reviewing Your Term Insurance Coverage

 

Life is an ever changing journey wherein you go through different phases. When you buy a term insurance plan, you assess your current financial needs, income, expenses, assets and liabilities and then make a choice. However, when there’s a change in your life, it is better to review your term insurance coverage and assess its sufficiency.

Some life events when a review of the term insurance coverage is recommended are as follows –

1. Switching jobs:

If you switch jobs and get a raise in salary, your income increases. This is the time when you can check whether your term insurance sum assured is optimal. If not, you can opt for an additional plan to enhance the sum assured as you can now afford to pay a higher premium.

2. Getting married:

When you get married, you start your family and the number of dependents increases. Moreover, you can have new goals like buying a car, moving into a bigger house, etc. As such, after marriage, a review of the existing coverage is better.

3. First child:

As your first child is born, you get an added dependent. Moreover, you need to plan for the financial future of your child, i.e., education, higher education, marriage, etc. You, thus, need to review your coverage and see if it is sufficient enough to cover the added goals.

4. The family grows even larger:

If you have more children, having a sufficient corpus to meet each of their financial needs becomes important. It also signals the need for a higher sum assured and a review becomes important.

5. New loan:

If you take on a new loan, your liabilities increase. You should assess whether your term insurance coverage is suitable to cover the increased liabilities or do you need to enhance it.

6. Closer to retirement:

As you move closer to retirement, many of your financial responsibilities might be taken care of. A review becomes important to assess if the coverage needs to be reduced or if it is sufficient to provide your spouse with an optimal financial corpus in their old age.

 

How to Review Your Term Insurance Policy?

 

To review your term insurance policy, you can –

1. Check your current income and expenses

2. Assess your current assets and liabilities

3. Check your existing coverage

Then you can calculate how much term insurance coverage is required. Deduct the existing coverage from the required amount and you will get the coverage that needs to be increased.

 

Reasons It Is Important to Review Your Term Insurance Coverage from Time to Time

 

Reviewing your term insurance coverage at regular intervals is important. Here are some reasons why –

  • As your life stage changes, your financial goals and needs change. As such, you should ensure that the existing coverage aligns with your changed needs and goals.
  • If you have a higher income in the later stages of life, you have a higher purchasing power. You can pay a higher premium for a higher sum assured. So, if you had opted for a limited sum assured in the past, you can review the coverage and enhance it.
  • A review also helps you assess if the number of dependents has increased and if you have to take care of their needs too. If they have increased, a review helps in enhancing the coverage at the right time.
  • A review ensures that your coverage is optimal to meet your family’s changing financial needs.

 

Conclusion

 

A term insurance policy is a financial security tool which gives peace of mind. Buy the policy after careful consideration of your financial needs. Avoid the common mistakes and make the right choice. Also, review your coverage with the changing phases of your life so that it remains adequate for the enhanced or reduced financial needs of your family.

 

FAQs

 

1. How can I determine the right amount of coverage for my term insurance policy?

There are various methods to determine the right amount of coverage for term insurance. Alternatively, you can use the life insurance calculator which helps you calculate the right sum assured. Just put in some simple details in the calculator and you can check the optimal sum assured in minutes.

2. What should I do if I realize I made a mistake when purchasing term insurance?

Term insurance plans provide a freelook period of 15 days2 (30 days2 for online or distant marketing modes) after buying the policy. If you think you have made a mistake, you can cancel the plan during this freelook period and get a refund of your premium subject to some charges and terms and conditions.

3. Can I change the details of my term insurance policy after purchasing it?

Changing the term, sum assured, premium paying term, etc. are not allowed after you have bought the policy.

Reference

1. https://www.livemint.com/money/personal-finance/four-methods-to-calculate-how-much-term-insurance-you-need-11605023306997.html

2. https://policyholder.gov.in/free-look-period

Information gathered from –

● https://www.moneycontrol.com/news/business/personal-finance/five-common-mistakes-to-avoid-while-buying-term-insurance-9078221.html

● https://www.financialexpress.com/money/insurance-5-mistakes-to-avoid-while-buying-term-life-insurance-2890454/

● https://disb.dc.gov/page/life-insurance-review-your-policy-secure-your-familys-future

BJAZ-WEB-EC-05847/24

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~Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for eligibility.

The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information. 

The views stated in this article are not to be construed as investment advice and readers are suggested to seek independent financial advice before making any investment decisions. For more details on risk factors, terms and conditions please read the sales brochure & policy document (available on www.bajajallianzlife.com) carefully before concluding a sale.

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%%Above illustration is for Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V03) considering Male aged 25 years | Non-Smoker | Policy Term (PT)– 30 years | Premium Payment Term (PPT) – 30 years | Sum Assured opted is Rs. 1,00,00,000 | Online Channel | Standard Life | 1st Year Premium is Rs. 6,238. 2nd Year onwards premium is Rs. 6,659. Total Premium Paid is Rs. 1,99,349 | Medical Rates | Yearly Premium Payment Mode | Death benefit opted is lumpsum payout and monthly installments (Lumpsum Payout Percentage : 45, Income Payout Percentage : 55) | Premium shown above is exclusive of Goods & Service Tax/any other applicable tax levied, subject to changes in tax laws, and any extra premium and is for illustrative purpose only. This is inclusive of all the discounts mentioned above.

##Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

@Term Insurance plan bought online directly from Bajaj Allianz Life Insurance has no commissions involved.

^^The Return of Premium amount is total of all the premiums received, exclusive of extra premium, rider premium and GST & /any other applicable tax levied, subject to changes in tax laws
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