Investment in a life-insurance policy is really worthy for any individual as it secures your life as well as the lives of your family members. It has a tenure fixed by its company as soon as the tenure is over you get back the whole amount and in case of your demise the total amount at the death is handed over to the nominee. Although because of so many policies and plans prevailing in the market a person gets confused among them as it is really important to compare plans and then select one. So, here we will discuss the common mistakes any person makes while choosing the plan of life insurance as it is really important to finalize the most profitable plan.
A perfect term policy of life insurance ensures that your family is protected and the family members are getting full coverage even when you are not around.It is very necessary for a person to go through all the minute terms and conditions provided by the company of insurance as one must understand the details of term insurance plans. So here we have tried our best to serve all the important details that a person must undergo before finalizing a term insurance plan.
Alright ! So we will start from a question :
Why do we invest in a term insurance policy?
A term-insurance policy is the simplest and the purest form of life insurance. It gives the benefit to the policy holder in case he is alive and if not, then to the family members or the nominee of the policy. The benefit is fixed in case of death i.e even if the policy is not mature still the maturity amount or the amount as per the terms and conditions will be provided to the nominee.so basically it helps the family of the person to stay financially secured even after the death of his loved one.
Well there are so many times when a person purchases a policy and then he regrets as without comparison the decisions are being made. So we should never choose a term plan in a hurry. Though these decisions are unintentional as no one undergoes losses intentionally but once a bad choice being made the person has to bear it forever as there is no undo button,then not only the policyholder but the family members could also be affected by the consequences of his bad decisions. So, before you purchase a term insurance policy, have a glance at these mistakes that one must avoid while buying a term-insurance plan:
What mistakes should be avoided while buying a term-insurance policy?
- Poor Selection of coverage: The basic reason behind taking a term insurance plan is to cope up with the un announced emergencies taking place in the family. The family has to bear a lot after the demise of the earning member so it basically provides financial stability to the family members after the death of the policy holder.However, if you choose insufficient-coverage, the funds that are being offered by the policy will not last long. Hence, one must buy adequate coverage keeping in mind the needs of your entire family. An ideal term plan’s coverage must be ten times more than your average annual income.
- Choosing a short-term plan: One of the common mistakes a person makes while purchasing a term plan is purchasing any term insurance plan for a shorter span of time. Purchase of a plan for short duration is the commonly observed mistake. In order to save their money the policy-holders make this mistake unknowingly and unintentionally. For example, if a policy-holder buys a ten-year plan at the age of 25, he will be needing a new policy once he crosses 35years of age. Once a person reaches 35 his responsibilities increase as well the expenses also increase now purchasing new policy at 35years of age means more premium will have to be paid by the policyholder.So purchasing it for 10 years making it for at least 20-25years can help. So we need to purchase a policy which doesn’t need to be renewed , and goes on for a longer span of time.
- Failure to compare multiple policies: The best way to purchase the optimum profitable policy is to compare it and understand its basic clauses and all the terms & conditions.Before the purchase of a term plan, every policy-holder must go through a thorough research on various term insurance policies that are available in the market. All the features, benefits and the premiums of the term plans need to be known by the policyholder so that the selection process can take place without any much hassle and if you feel you are in chaos then always go and seek help from any professional.
- Lack of involvement of online-plans: In today’s era everyone has an access to the internet so we should always go through the available plans as well as search on Google about the different plans which are being provided by different companies as well as comparison should also be done then and there as it will save your time and money.Online companies provide better plans from the offline companies.
- Inaccurate understanding of information: When a person purchases his term insurance plan for a shorter span, he thinks that he is Young and will not face any fatal disease so the amount which is being invested in the policy will go waste but as it saves tax so people purchase it anyway.But apart from giving death benefits it gives a lot of benefits. Death is unpredictable so even if it happens family will have the cover under policy and even not after the completion of the tenure the amount is being given back to the policy-holder.It gives financial security as well as peace of mind that there is a help in case you are undergoing some financial crisis and of course it provides tax benefits under Section 80C and Section-10(10D) of the Income-Tax Act, 1961(subject to conditions stated therein).
So here we discussed the basic and common mistakes that anyone can make while choosing a term plan so always keep it mind to understand and compare before choosing one and take a plan for longer span of time for higher benefits.
Founder & CEO| Fox Investor & A.V.A. Taxway Associates- Corporate & Tax Law Firm
Viibhor Agarwal is a Business & Brand Consultant as well as he is a Financial Expert his area of specialization is to guide Entrepreneur, Start-up’s and SME’s to build the brand value of business financially & legally. He has 8 year extensive experience in this sector