Buying Term Insurance? Avoid These Mistakes

Over the years, the term life insurance policy has gained immense popularity. Although the number of buyers has increased significantly, not many people know how to buy the best policy and consequently get stuck with a plan that is not aligned with their needs. When you buy the wrong policy, there is always a risk that your family suffers from inadequate coverage.Hence, it is critical to be careful while buying term insurance.Let us look at some of the most common mistakes that people, especially first-time insurance buyers, make and understand how you must avoid them.

While buying term insurance, you must ask yourself – how much cover do I need? Although a popular number these days for a term plan is Rs. 1 crore, it is just a random number, and there is no logical calculation behind it.While deciding how much coverage you need, you must consider your future household expenses, liabilities, life goals, etc. Most experts recommend buying a policy with a sum insured that is at least 60 times your current income. Remember, the sum insured must be enough to help your family members live a financially independent life and maintain their current lifestyle even in your absence.

This is one of the most common mistakes that most term insurance buyers in India commit. When you delay buying the term plan, you leave your family vulnerable to financial hardship. Additionally, the term life plan gets expensive when you buy it at a later stage.Let us understand how buying term insurance becomes expensive when you delay it until you are in your 40s.If you buy a term plan with Rs. 1 crore sum insured at the age of 30, the premium would approximately Rs. 10,000 every year. Thus, if your policy offers coverage until the age of 75, you would pay about 4.5 lakhs in total. But, if you buy the same plan at the age of 45, your annual premium would be around Rs. 30,000, which means over the next 30 years, you would pay about Rs. 9 lakhs.So, it would help if you bought a term plan as soon as you start earning. It will not help you get coverage at a lower price and save a significant amount in the long-run.

If the term life insurance 's tenure is too short or too long, it may completely lose its purpose. Let us understand this with an example.Assume that you buy a term plan at the age of 30 for 20 years. This means the policy will lapse when you are 50. You may still have several financial objectives to achieve at that stage, like children marriage, buying a retirement home, etc. These goals must be protected until they are achieved.Similarly, if you have purchased a policy that covers you until you are 80 years old, but you retire at 60, you would have to pay the premium for 20 years, even as you stop working and have lower or no income.

Today, insurance companies in India offer a wide range of riders or add-on options for term life insurance policyholders. These riders allow you to customise your plan and get protection against specific risks that the regular term plan may not cover.For example, if your family has a history of cancer, it would make sense to purchase a critical illness rider to get protection against the cancer treatment cost.But, buying too many riders would make your policy expensive, and you would be paying an additional premium unnecessarily without using its benefits.

While buying term insurance, it is imperative to understand the policy's terms and conditions; you must be aware of the inclusions, exclusions, the payout mode, etc. Remember, policy papers are a legal document, and once you sign the papers, it means you agree to the terms and conditions mentioned therein. So, to avoid any confusion and legal hassles, you must know what your policy entails.Now that you are aware of the common mistakes that people make while buying term insurance and how to avoid them, make the smart choice and enjoy the benefits of your policy to the fullest.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.