Summary
This blog discusses the top 5 mistakes people make while taking term insurance, including inadequate coverage, delaying the purchase, not opting for riders, and providing incorrect information.
Highlights
💰 Financial mismanagement can occur if people do not know what to do with a lump sum payout from a term insurance policy.
⏰ Starting a term insurance policy early can result in lower premiums compared to starting later in life.
💵 Adjusting the sum assured for inflation ensures adequate coverage over time.
🛡️ Opting for riders, such as critical illness coverage, provides additional benefits to the policyholder’s family.
📝 Disclosing all pre-existing ailments is important to ensure smooth claim settlement.
Hey folks!!! I am here and I welcome you all to a very very important video wherein we are going to discuss the top 5 mistakes that people make while taking a Term Insurance.
Now why did I do this article? When we had done this video on the Top 5 mistakes that you should avoid while taking Health Insurance in the comment section many people were like we loved this video, it was very good input for us so you all had requested me to do a similar video for term insurance and that is you a simple example for that you might have heard stories about people winning lotteries of crores of rupees or you might have even stored heard stories of people who won the Kon Banega Crorepati game, but eventually they went bankrupt why did this happen because they knew how to earn money but they did not know what to do with so much money when especially it is received all at once, what could a similar analogy be?
Let me again give you another example assume this is A family, Mr A and Mrs A and there are two children and unfortunately, Mr A dies, now assume that this person had some assurance of let us say Two crore rupees what could happen? They could receive two crores at one shot agreed but if they are not aware of what to do with these two crore rupees could there be financial mismanagement and eventually they could also end up in pain so what could be the solution for this? Solution possibility number one is you can go for a monthly payout option so in case of the demise of Mr A this family would get X rupees whatever is pre-decided every month which will ensure that their day-to-day routine is not disturbed but then there is another problem could there be a possibility that there could be some contingent happening wherein they would also need a lump sum money for that you have another option wherein instead of only monthly income to be given to them they will get number one lump sum money plus they will also keep on getting some monthly payout option so instead of going with one one-shot lump sum I gave you two options possibility number one go for a monthly payout, possibility number two a small lump sum plus a monthly payout option.
The second mistake is Delaying the purchase of the term plan. Now what could happen here is many people who are in their early 20s or their early 30s they’re like why do I need term insurance? why do I need life insurance? and what could happen is that when they are nearing their 40s that is when maybe their body will start showing certain signs of ageing and all and that might be the time that they realize I think I should have life insurance but then let’s try and compare the premium that they would have to pay at the age of 40 with had they started their term plan at the age of 20, exactly that would be the amount of premium so I hope you are realizing that if you start with your life insurance at a pretty early age your premiums are way too lower if you start as compared to a policy at a late age, in simple words the thumb rule is earlier the better.
let’s move on with the third mistake which is Inadequate assured, let’s go back to our same example of Mr A, Mrs A and their two kids. When Mr A took out his term insurance at that time his salary was 10 lakh rupees so ideally his sum cover should be at least 5 to 10 times his income Mr A had done he had covered his life with 10 times his annual income so what could his summer short could have been it could have been 10 lakhs multiplied by 10 that is One crore. Now understand do you think that one crore at this point sounds more than enough? The answer is Yes, but now imagine that his demise would have happened 10 years later. 10 years later value of one crore versus the value of one crore today is there a big difference? The answer is obviously Yes and why is that difference? Differences are major because of inflation. Now ideally should you be adjusting your sum assured when you are alive? Absolutely Yes, so what could be a simple solution for that- while you are taking out your term insurance policy ideally you should top up your term insurance every single year but you need not top up it physically every year while you take out the policy you should just define that my term insurance costs some assured should go up every year by ___x__ percentage now ___x__ percentage you could ideally match up with inflation say six per cent now you can also define that six per cent increase in some assured should happen till when? till let us say your policy is there let us say for 20 years, you can say that this six per cent should increase till my sum assured is doubled or you could also say that this six per cent increase should happen till I am of age let us say 45 or 50 or whatever, this specific will this specific thing will ensure that your sum assured takes care of the inflation as well so I hope you have under understood that some assured is not important only as on date but it should be adjusted with inflation.
Let’s move on with the fourth mistake and that is not opting for Riders. Now Rider’s simple meaning is add-ons I’ll give you an example for that assume you go to a coffee shop and ask for a cappuccino, now the person who is going to serve you coffee might ask Mam would you want to have extra cream and I’ll be like yes extra chocolate chips yes extra anything yes but then if he tells you that this is going to be chargeable you’ll be like nako rahu de, rahu de, same logic is applied by many people for a Term Policy as well now when you compare a Term Policy with a cold coffee, cold coffee will be just like a pure term the top top-ups for the coffee can be compared with riders, now I’ll give you an example of a rider rider can be for a critical illness as well critical illness can be example can be like cancer, now if a person opts for a rider of critical illness and unfortunately if that person dies because of that then the family members will not only get the some assured but also will get an additional payout for that so always remember I mean making an extra payment for Riders is still beneficial because your family members are going to get an additional payout other than the sum assured.
Moving on to our last mistake which is providing incorrect information. Like if you remember in the pre-bumper of the video this person had not disclosed certain information now what could happen? If a person dies because of a pre-existing disease and if this was not disclosed while taking out the term plan or any insurance policy for that matter, in that case, his family members might not get the claim that the claim will be rejected so don’t take such risks ideally as a person you should be disclosing all pre-existing ailments to ensure that the claim settlement happens smoothly. Well, I hope you have understood all the mistakes that you should avoid while taking term insurance.