Digit Glow Term Life Insurance
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1 Crore coverage starting at just ₹1,309*
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Same-day issuance for healthy individuals
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No hard copies or queues required for claims
Common Mistakes to Avoid When Choosing a Term Plan
Term insurance plays a key role in ensuring your family’s financial security. However, people often approach it with mixed feelings, either rushing to buy a policy or hesitating. It’s not uncommon to have a friend or family member recommend a policy or get a call from an agent suggesting you consider term insurance to protect your loved ones’ future.
For these reasons, many people rush into the first plan they encounter, often needing to fully understand the policy. Read on to learn more about the common pitfalls and how to avoid them while choosing the right term plan.
Table of Contents
Why Do Most Indians End Up Buying Term Insurance the Wrong Way?
Most Common Mistakes While Buying Term Insurance in India
When buying term insurance, a few common mistakes are easy to commit. Some of them have been mentioned below so that you don't make the same mistakes:
Why Delaying the Purchase Costs You More?
The earlier you buy term insurance, the lower your premiums are. Here’s a chart explaining the importance of purchasing term insurance early and the possible effects of delaying:
Hence, the best time to secure a term insurance plan is early on, while in good health.
What Insufficient Term Insurance Coverage is the Real Challenge?
Choosing a term insurance policy with too little coverage can be a hidden risk. This can leave families financially vulnerable in difficult times. When coverage falls short, it may not provide enough support for essential expenses like daily living, education, or any debts.
The main goal of term insurance is to replace the policyholder’s income. It helps the family meet their important financial needs if the insured is no longer there. If the coverage is insufficient, families may struggle to maintain their standard of living. This may lead to debt or cutbacks that affect their long-term plans.
How Much Term Insurance Coverage is Enough?
Opting for 10-15 times your annual income is a general recommendation. However, factors like age, income, and dependents also affect the selection process.
Here are a few illustrative examples:
Scenario 1:
Sunita (Single, 30 years old, No Dependents)
- Annual Income: ₹6,00,000
- Coverage: ₹60,00,000
Scenario 2:
Sourav and Preeti (Married, 35 years old, 2 Kids, Loan of ₹30,00,000)
- Income: ₹12,00,000
- Coverage: ₹1.74 crore (12x income + loan)
Scenario 3:
Rohit (Retiree, 55 years old, No Loan)
- Income: ₹10,00,000
- Coverage: ₹60,00,000 to ₹80,00,000
Comparing Term Insurance Options for Your Needs
Each term insurance plan offers different features and benefits. One plan cannot cater to everyone’s financial and life goals. Hence, comparing different policies, riders, and features is crucial rather than settling for the first option.
Here's a table summarising the different types of term insurance plans and their coverages:
Misconception about Treating Term Insurance as an Investment
No Maturity Benefits
Since term insurance is a pure protection product, maturity benefits are not allowed if the policyholder survives the term.Reasonable Premiums, Ultimate Cover
Term plans have high coverage at low premiums, serving the purpose of protecting finances rather than generating wealth.Focus on Security More Than Growth
The primary goal is to replace income for dependents to stabilise the family after the policyholder's death. It is not a means of building wealth.Investment Plans Have a Different Purpose
To create wealth, you have options like mutual funds, ULIPs, or fixed deposits. Term insurance is an addition to investments, not a replacement.Why Should You Consider Buying Term Insurance Online?
Digital insurance offers numerous advantages for both insurers and customers, driving efficiency and improving overall experiences. Some of these are discussed below:
Riders: How Many Are Too Many?
Riders like critical illness, accidental death, and waiver of premium can enhance your term plan. Here are a few points regarding the importance of choosing the right riders:
- Selecting necessary riders allows for coverage that fits personal circumstances and financial goals, providing peace of mind.
- It is crucial to prioritise riders that enhance protection rather than opting for every available option.
- Opting for a rider is often more budget-friendly than purchasing a separate insurance policy.
- You have the freedom to add a rider to almost any insurance policy. This means you can tailor your coverage to match your requirements.
- Since riders are considered part of your life insurance policy, the payments you make towards them can also qualify for tax benefits.
However, adding too many riders can complicate your policy. Excessive riders can inflate premiums and waste resources if they don’t offer significant benefits. It's important to strike a balance and choose only the riders that meet your needs.
What to Look For When Buying Term Insurance Plan?
When choosing a term insurance policy, looking beyond the premium and coverage amount is crucial. Many often overlook important details that significantly impact their claims and overall protection. Here’s a checklist of essential terms to check:
Ensure the policy's length fits with your long-term financial goals and responsibilities. Lastly, check if any bonuses or additional benefits are included during your policy term.
Why Should You Consider Customising Term Insurance Coverage?
Your financial needs change as you move through different stages of life. Customise your coverage based on your current life stage to ensure adequate financial protection. Regularly review your term plan to ensure it continues to meet your needs.
Hence, choosing the right term insurance plan requires careful consideration. Avoid these common mistakes to ensure that your loved ones are financially secure. Start early, compare your options, and customise the plan to your life stage for maximum protection.
FAQs about Mistakes While Buying Term Insurance
How do I get my money back from term insurance?
Can we modify term insurance?
Can we change the payment term in term insurance?
Is it possible to cancel term insurance?
Is the premium on term life insurance fixed?
Can I cancel my term insurance policy after 20 days of purchase?
Why is it important to assess financial needs before choosing a term insurance plan?
What should I review in the policy coverage details of my term insurance?
What steps can I take if I discover I made a mistake when buying term insurance?
How can I determine the right amount of coverage for my term insurance policy?
Why does the claim settlement ratio matter for term insurance?
What are riders and add-ons in term insurance?
Other Important Term Insurance Guides
Other Important Articles Related to Term Insurance
Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
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