How NOT to choose term insurance plan in India…?
People always go with a wrong notion to buy their term plan. They prioritize savings over their life.
Thus many a times it is seen that the demand for health or life insurance remains high at the end of the year. People rush to save tax on their income and this makes them buy insurance.
Is this how your buy your own policy…?
Then don’t feel guilty as you are one among many. Infact buying insurance to save on tax is among the most common mistakes that people usually make. Other mistakes that people generally do before buying their plan are:
1. They buy cheap:
Term insurance is the most affordable insurance plan you can have, still people consider buying cheap.
Though there is nothing wrong in buying the most affordable plan. But when people let money influence their decisions then they ultimately tend to lose.
This is because cheap insurance may not always be the most suitable term plan. As there are plenty of other factors that you should check out before buying one for yourself.
The most important of all is the claim settlement ratio and this should be your decision driving factor as well.
What is claim settlement rate…?
It is the ability of your insurer to pay your family at the time of claim.
If it is too low then you might want to run the other way. And if it is too high then you would want to check out what else they have to offer.
What it means to you…?
This is by far the most important factor that should influence your decisions.
If the profile of some company is like:
- Claim settlement ratio = 70% and
- Premiums = among the cheapest in the industry.
Would you buy from such a company…?
If you are inclined analytically then you would probably not. It is because there claim settlement rate is way too low.
It states that out of 100% of claims made only 70% of them gets settlement, which is really bad…!
If you buy from them then you will buy headache for your family, as there plea may go unheard. Thus you would be better off staying away from such a company.
2. My term plan covers almost everything:
You may feel like your term plan covers everything but the truth is, it hardly covers enough.
Though the overall objective of your term plan is to provide financial safety but it is bought to meet one single objective.
It can be either to pay for the mortgage or for your child’s college. Both of them can’t be taken care off by one single plan.
Thus if possible buy your term policy that will meet one single objective. This way you will have more money at your end.
3. I don’t need any insurance, I am so young:
Buying when young is the best time to buy insurance.
This is when the premiums are at its best. Thus, if you plan to invest in a cheaper fund then buy as early as you can. As this will help you find the most affordable options.
Check out how premiums are affected with age:
Here I have taken a hypothetical e.g. of someone who is:
- 34 years of age,
- Non smoker and
Here are the results from policybazaar.com with their display premium quotes.
Now check out how the premium quotes change for some who is:
- 50 years of age,
- Non smoker and,
I have just changed the age of the person keeping all else same.
Premium quotes for this old man are:
Did you find any change…?
A person who is in his 30’s pays almost around 5 times less than as compared to someone who is in his 50’s. Thus it makes every sense to buy young as when you will save more, you will have more.
4. I am covered by my employer, I don’t need any other plan:
If you are covered by your employer then it’s great as then you might not need another policy. But now the question is:
Is your employer sponsored plan enough to take care of your family’s financial needs…?
Because group insurance plans are often just enough to cover your salary. It is so limited by means that you can’t think of covering your mortgage or your kid’s education fees.
If you have expect to have any heavy expense in near future (which you will definitely have), then have it secured with your term plan. This will not only give you a sign of relief but a peace of mind as well.
5. I don’t want to go through any medical test:
Nobody wants to go through that. We people have become so lazy that we tend to avoid someone who asks us to do something extra.
But do you know,
That companies who offer policies without medical verification tend to be costlier.
Why you may ask…?
These companies have otherwise no way to verify your condition, and for which they charge extra cost. This cost is then added to your premium and you pay for your lazyness.
Thus think twice before investing in a company which offers “NO MEDICAL TEST REQUIRED”.
6. I want returns:
Though growing your money should be your objective in life but it shouldn’t be your only goal.
“Investment in insurance doesn’t reap good results.”
If you plan to invest then invest it yourself and keep your insurance separate.
Insurance with returns generally cost higher by 10 to 20%.
Mixing both of them together will not only cost you in higher premium but you will get limited returns.
Check out what Aviva has to offer in its iShield return of premium plan.
They offer 110% return of your premium.
Now, let’s say
You bought this policy, now what you will have is:
- Cover of Rs.20 lacs.
- Premium (let’s say it is): Rs.2000 annually.
- Term of the policy: 10 years.
Thus when the policy matures what you will have in your hand is:
Rs.2000/- * (110/100) * 10 years,
Though your money remained safe all these years but do you think that a meager amount of Rs.22,000/- even worth your time.
I am sure you could have easily earned more by investing them yourself.
Thus don’t get caught by “Insurance with returns” trap as you will end up paying a lot more than you think.
7. Not buying enough:
This is one among many mistakes that people make before buying their plan.
“They don’t buy enough”
And this is what we call underinsuring oneself.
You may have lot of obligations but not enough cover. If such is the case then you are underinsured.
Thus make sure to list down all your preferences. Once you know what you want, it will become a lot easier to find your best plan, else otherwise:
“You will pay without benefits”