June 14th, 2019 | Updated on January 29th, 2020
In today’s world life has become extremely uncertain and you don’t know which day may be your last. This lack of clarity has led to people making decisions so that their family does not suffer after they are gone.
A term insurance plan is the first step that you can take in this direction. The conditions of term insurance are quite simple. You take the policy and when you die the sum assured passes on to your nominee.
Term plan is as simple as this. But many people still don’t know how it works. Here are five mistakes that they make when dealing with a term insurance plan:
1. Treating Term Insurance Only As A Means To Invest
Life insurance policy can be of multiple types. You can have a money back endowment plans or market-linked ULIP plans. The ULIP plan depends on the market conditions and would generate the returns on the basis of the conditions of the market at that moment.
On the other hand, an endowment policy is a debt based product, and has the capability to give you a 5% return on the basis of the prevailing conditions.
Term insurance is not for people who treat insurance as an investment tool. It is for those who want to protect their families from any uncertainties that may arise in future. Term insurance gives your family a lump sum on your death, and that is what its major positive point is.
2. Leaving The Policy At The Wrong Time
Whether you have taken a ULIP plan or term insurance, you must take care not to exit the policy at the wrong time. By doing so you may have to pay extra fees to the insurance company.
If you exit in the first few years then the cost you have to pay is quite high. On the other hand, withdrawal, when the policy is about to end, is also a loss-making proposition and should be avoided at any cost.
Instead, continue your policy till maturity as only then you can get the returns that you were hoping for. Most life insurance policies are framed in a manner that you can avail profits only when the maturity period is reached and that is how it should be.
3. Too Many Policies
We know that there is no dearth of insurance products in the market. However, this does not mean that you have to sign up for each of them. Whichever type of policy you opt for, choosing too many of them is only going to put you under unnecessary financial pressure.
Even if you are buying a ULIP plan you should always pick up one which is flexible enough to accommodate all your needs that may arise in the future.
4. Buying Policy For A Minor
Many people assume that when they buy a policy for their minor kid they would have to pay less premium amount. Since the mortality charges are less, in this case, it is but obvious to think that the premium amount would be less.
However, the child is not working and it is not worthwhile to buy any policy in his name. It is better to purchase a policy in the name of the main earning person of the family. If you want your minor child to reap the benefits of this policy, you can always put him up as the nominee.
5. The Cheapest Policy Is The Best Too
A term insurance plan has a simple procedure to follow. Here, you get the benefit only after the policyholder dies. There are no survival benefits offered by these policy providers, and this is where we tend to make a mistake. We usually look around for a policy which has the lowest premium, and apply for the same without any worries.
However, a cheap policy may not have the tenure and features that you may be looking for. You must read the offer carefully and apply only after that to ensure that you are going to get the best returns.
These are just some common mistakes all of us make while choosing a term insurance policy. Instead of rushing into the process, it is always wise to understand each header carefully.
You can compare multiple policies to know which one has the terms that are suitable as per your need. Later analyze each one of them individually and hopefully, you should be able to pick the best policy for the long term.
Feature Images Source: Futuregenerali