5 Common Mistakes to Avoid When Buying
Term Life Insurance in India
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20-May-2024
Introduction
Introduction
Term life insurance plays a vital role in securing your family’s future in the event of your untimely demise. However, many people in India make avoidable mistakes when purchasing a policy. Let’s explore five common pitfalls and learn how to steer clear of them.
1. Relying on the Thumb Rule for Coverage Amount
1. Relying on the Thumb Rule for Coverage Amount
Mistake: Using a generic thumb rule (e.g., 10 times your annual salary) to determine the coverage amount. This can lead to insufficient protection.
Solution: Calculate the actual amount your family will need to maintain their lifestyle, pay off debts, and achieve financial goals. Subtract any existing assets or investments from this figure to arrive at your ideal coverage.
Example: If your annual salary is ₹6,00,000 and your family’s financial goals require ₹50,00,000, but you already have ₹10,00,000 in savings, your coverage should be ₹40,00,000.
2. Not Opting for Riders
2. Not Opting for Riders
Mistake: Ignoring riders (additional benefits) which provides protection in case of permanent disability or critical illnesses. God forbid, but this can leave you vulnerable to unexpected events.
Solution: Consider adding riders such as critical illness, accidental death, or disability coverage to your policy. These riders provide extra protection beyond basic life insurance.
Example: If you suffer a critical illness, a critical illness rider can offer a lump sum payout to cover medical expenses and loss of income during your recovery.
3. Focusing Solely on Claim Settlement Ratio
3. Focusing Solely on Claim Settlement Ratio
Mistake: Choosing an insurer based solely on their claim settlement ratio (CSR). This can be misleading.
Solution: While claim settlement ratios are important, remember that they calculate this considering all insurance products (like vehicle insurance, health insurance, life insurance, etc.), and not ONLY Term Life Insurance. Research the insurer’s reputation, customer service, and overall financial stability.
Example: An insurer might have a high settlement ratio for other products but a lower one for term life insurance due to different risk profiles.
4. Providing False Information in the Proposal Form
4. Providing False Information in the Proposal Form
Mistake: Relying on your financial advisor to fill out the proposal form. This can lead to inaccuracies or omissions.
Solution: Fill out the proposal form yourself with accurate details. Providing false information could result in claim rejection when your family needs it the most.
Example: If you fail to disclose a pre-existing medical condition, the insurer might deny the claim.
5. Choosing the Wrong Claim Payout Option
5. Choosing the Wrong Claim Payout Option
Mistake: Not considering the claim payout option. This can significantly impact your family’s financial stability at the time of utmost need.
Solution: Decide whether to provide your family a lump sum payout or in the form of monthly installments, based on your family’s financial literacy and investment capabilities.
Example: If your family is financially sound and knows how to spend and invest the money, a lump sum payout allows strategic investments. Otherwise, choose monthly payouts for a steady income stream.
Conclusion
Conclusion
Buying term life insurance is a significant decision.
By avoiding these common mistakes,
carefully assessing your needs, and
making informed choices,
you can effectively protect your loved ones’ future.
Remember that a well-chosen term life insurance policy is a crucial part of a comprehensive financial plan. Take the time to get it right, and your foresight and care will be appreciated by your family.
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