Top 5 Mistakes you should Avoid While Purchasing a Term Plan
The earlier one starts investing in a term insurance plan, the more benefit they can avail in the long run. Nowadays, as life is so uncertainty it is very significant to have a term insurance plan in order to provide financial security to the family and the loved ones. A term insurance plan offers financial coverage to the policyholder’s family in case of any eventuality and decease of the policyholder. Nowadays, as there is a wide range of term insurance plans available in the market choosing the apt plan for you becomes confusing at times.
However, insurance seekers should check on the various aspects before buying a particular plan. In order to choose the most suitable plan, it is important to estimate the total requirement of your financial liabilities. People often confuse term insurance as an investment plan and there are certain mistakes that people often make while purchasing term insurance plans.
Treating Insurance as an Investment
Life insurance plans can be traditional plans like money-back and endowment, or market-linked plans like Unit Linked Insurance Plans (ULIPs). As both types of plans have a component of insurance, so the cost of these plans involved through mortality charges. While the earlier is totally a debt product, with the perspective to generate around 5 % return, the latter is an equity market-linked product, with the perspective to provide returns according to equity market conditions.
Exiting the Policy at the Wrong Time
Whether it’s a pure term insurance plan like ICICI Prudential Term Plan or money back plan, endowment plan or ULIP plan, insured may want to exit any time prior the maturity of the policy due to various reasons. Exiting a pure life insurance plan when your policy is reaching the maturity period can be a bad decision as the insured will still have to pay the surrender cost. Similarly, in other plans like ULIP, exiting plan can be a wrong decision as the charges are front-loaded and the insured will have to pay it in the initial five years of the policy.
It is always wise to continue the policy to maturity in order to enhance the return of investment over a long period of time. The profits available in life insurance plans are structured in such a way that the insured can avail the best return of investment only when the policy completes its entire tenure.
Purchasing Too Many Policies
Be it a pure term insurance plan or a ULIP, purchasing more than one policy can increase a lot of costs. Most of the life insurance policies have various cost-heads which comprises an administration charge (agency commission). So every time the insurance seeker buys a new policy he/she acquires this cost. This is particularly correct in the case of ULIPs. If one needs to purchase a ULIP, go for one which is flexible enough to meet the various goals at different stages of life.
Buying Policy in Name of Minor
A lot of people purchase policies in the name of minor children thinking that they will have to pay low mortality charges and thus the cost of the premium will also be low. But as children don’t have any capacity of earning, it does not make logic to purchase term insurance in the name of children. Instead, the life insurance policy should be bought always in the name of the breadwinner of the family.
Cheapest One is the Best
Traditional term insurance plans offer high life cover at a low premium cost. They provide life protection and cover the risk of dying too early in case of any eventuality of the insured person. A pure term insurance plan does not have any survival benefits. Most insurance seekers, therefore, search for the economical term insurance plan and even consider buying online term plans. While buying the plans online there are certain aspects that should be kept in mind. Term insurance plan offered online can have limited features. Moreover, the cheapest plan according to your age and desired sum assured may not have longer tenure.
While purchasing term insurance, it is important to pay full attention to the details of the plan. Before purchasing the plan it is important to read thoroughly the details and terms and conditions of the policy so that one can get a brief idea about the policy coverage, exclusion and inclusion, and discounts. This will help the insurance holder to resolve the issues that might occur at the time of claim settlement.
So, now that we have elaborately discussed the common goof-ups made by insurance buyers while purchasing term insurance, one can be more discreet while choosing a term insurance plan for purchase. In order to avail the best insurance plan, the individuals can compare the plans online or take help of the insurance consultant’s in order to make an informed decision.