The Dos and Don’ts While Availing of Term Insurance

Term insurance is widely believed to be the simplest and the purest type of life insurance. It offers the policyholder a life cover (sum assured) for periodic (or lump sum) premium payments. The premiums for these plans are usually some of the lowest you can get, and the sum assured is on the higher side. The sum assured (death benefit) is paid out to the policyholder’s nominees in case of their untimely demise during the policy term. However, if they survive the policy term, there are no maturity benefits.

It is, without a doubt, the most integral component of any basic insurance or investment portfolio. This article will take you through basic dos and don’ts while buying term insurance plans.

Why neglecting term insurance can be a wrong decision?

Neglecting term insurance isn’t a wise decision. Let’s understand this with an example.

Consider a scenario where a family currently requires Rs. 50,000 per month to meet all expenses. In an unfortunate turn of events, the primary breadwinner passes away young, leaving the family with financial strain. There was no life insurance cover in place for this contingency, and the savings of the deceased are just around Rs. 10-20 lakh in total. In today’s economic climate with ever-increasing inflation, this sum will hardly sustain the family for a couple of years or so.

Consider another scenario with the same family and the same financial requirements. However, the only difference is that the deceased has a term plan with an assured death benefit of Rs. 1 Crore. Upon his demise, the family will receive this payout, which they can gradually utilize for their expenses. They can even invest in various financial instruments like mutual funds, stocks, bank deposits, etc., to earn monthly interest. This will take care of monthly expenses while their primary corpus remains intact.

Hence, term insurance is indispensable for every earning/working individual and their family. In addition to the affordable yet robust financial security that it lends to the policyholder’s family, a term insurance plan has the following benefits:

• Long-Term Coverage: Term insurance policies provide long-term protection, frequently through ages 75 or 85. Some term plans can even provide coverage for 100 years. This form of long-term insurance guarantees your family’s financial security in the event of any unanticipated circumstances.
• Tax Advantages: The tax advantages of term insurance come in the form of deductions and exemptions. You are qualified to deduct up to Rs. 1.5 lakhs of the premiums paid for your term plan from your gross income under section 80C of the Income Tax Act, 1961. Additionally, the death benefits that your nominee receives under the plan are tax-free under section 10(10D).
• Benefit Enhancements with Add-On Riders: Term insurance, on its own, provides death benefits in the form of a life cover. However, you can rely on the add-on riders to increase the level of protection that your insurance provides. These riders offer financial protection for particular expenses or conditions for a small additional fee. The accidental permanent partial/total disability rider, the critical illness rider, the waiver of premium benefit rider, the family income benefit rider, and the accidental death rider are some of the most popular riders.

Things to watch out for when purchasing term insurance

There are several dos and don’ts when buying term insurance. You should always consider these points before investing in any policy.

The Dos- 

• Always be clear on your needs – You should always be clear about the required insurance coverage. What will be your family’s future requirements? Are there future goals that have to be met? Take all these aspects into account beforehand. You can use a free online term insurance calculator for this purpose.
• Guidance is always a boon – You can check out all the suitable options and compare them thoroughly online. You should also get guidance on choosing the right term insurance policy for your needs if needed. Ensure you get all the information on the premium amounts, inclusions/exclusions, terms and conditions, available riders, and other aspects linked to every plan out there.
• Fill up the proposal form with care – Be careful while filling up the proposal form. You should first read through it diligently and then fill in your details. Make sure that you enter all details correctly and understand the questions that are there in the document. Look at the terms and conditions in the document before going ahead.
• Save a copy – Keep a copy of your proposal form and all the declarations you gave in the same. This may benefit you in the future.
• Gather vital details – Check out all the details while buying term insurance. These include the frequency of premium payments, payment method, charges, and other costs, free look period, etc.
• Evaluate the insurance company – You, as a customer, should also examine the reputation and track record of the insurance company. Check the claim settlement ratio and the solvency ratio of the insurance company as well.

The Don’ts- 

• Do not provide wrong information – In case of any discrepancies in the information provided by you, a claim by your loved ones may be rejected in the future. To avoid this, ensure you enter the correct details without any errors. Do not conceal information from the insurance provider, like your medical history or lifestyle.
• Do not sign any blank application form – Do not blindly sign on any blank application form or document. Make sure you complete filling and signing the form without leaving any portion blank/incomplete.
• Do not default/delay on premium payments – Ensure that you do not skip/default on premium payments after purchasing the policy. This may lead to a lapsed policy and leave your family vulnerable, without any financial safety net.

You should note these few dos and don’ts before buying term insurance. Avoid rushing through the buying process, no matter what. Take your time and choose the best possible option that fits your needs.

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