5 common mistakes to avoid while choosing a term insurance policy

You need to choose the right term insurance policy to provide for your family. Still, it is important to ensure that you don’t make avoidable errors such as: inadequate coverage, hazy policy terms, higher premiums, vague add ons etc.

This should be kept in mind so that you don’t end up with unfair premium pricing, inadequate cover or miss out important add on options. The following are five errors which need to be avoided while choosing a term insurance policy in India:

1. Underestimating coverage needs

The biggest error is underestimating your coverage requirements. Most individuals apply thumb rules or seek guidance from someone else without considering their own financial situation, like pending loans, day-to-day expenses, and long-term aspirations.

Now it makes sense to work out your sum assured necessary based on your family needs and liabilities and keep them appropriately covered in case something untoward happens to you. As a general rule most financial advisers suggest a coverage of at-least 10-15 times your annual income.

2. Focusing on lower premium pricing

While the focus of applicants is always on trying to get the lowest possible premiums on their policies still, purchasing the policy just because of low rates is not the best practice to imbibe. It is important to acknowledge that low-cost policies either come with lesser cover or with huge exclusions.

There has to be an equilibrium between the policy premium along with the benefits and add-ons of the term insurance policy. Further, each add-on feature, add-on benefit, and claim settlement ratio has to be carefully examined so that you don't miss out on core fundamental parameters and proper coverage.

3. Downplaying the importance of other riders

Most people do not factor in important riders and fine points of their term insurance policies. There are several crucial riders that provide additional cover to complement the term insurance policies.

Some of the riders such as: critical illness cover or accidental death cover can provide the additional cover for a reasonable extra premium. Not opting for this cover puts your loved ones at a disadvantage by denying them critical add-on coverage.

4. Having an insufficient policy tenure

Choosing a shorter tenure in your policy could appear to be a sensible step but can easily land you in severe financial trouble in future. That is why consider going for a policy with adequate coverage and a longer tenure.

It has been seen that individuals possibly don’t buy a term insurance policy until significant landmarks in their lives are achieved such as: until retirement or until their children are financially independent. That is why in your case you must choose a term that insures you properly into the future and keeps things under control.

5. Not sharing the complete information

This is another critical mistake that aspirational policy holders make, that is providing incomplete information. Now, inaccurate or incomplete information submitted during the application may lead to a denial of future claims.

All the medical facts, past history, accurate age etc must be disclosed because the insurer uses such information to determine the risk. Inconsistencies in this particular domain can ruin your family's financial security when they are most in need.

Therefore, to conclude, by eliminating such mistakes, you can make sure that you opt for a term insurance policy that actually covers your family's needs and also provides you with peace of mind.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Please consult a licensed financial advisor before making any insurance decisions.