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Term Insurance Buying Mistakes  to Avoid 

Term Insurance plan is a tool that ensures your family’s financial security even in your absence. You should exercise diligence while buying an insurance plan. The proceeds of the plan should meet your family's monetary requirements. An informed decision is crucial to get the best out of your investment in a term plan. ...Read More

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TERM INSURANCE PLANS BUYING GUIDE

Common Mistakes to Avoid While Buying Term Plan

Common Mistakes to Avoid While Buying Term Plan
January 08, 2025

Table of Content

 

10 Mistakes to avoid while Buying a Term Insurance Plan

Buying a Term Plan for a Short Duration

One of the common mistakes to avoid while buying a term plan is opting for shorter terms to save on the premium. You do not realise that by the time you renew the plan every time, the premiums will have shot up. Also, during a renewal, if the insurance company discovers that you have any medical issues, they may reject the application. It is wise to buy a whole-life plan so that you do not have to renew it periodically.

Not Having Enough Coverage

The objective of investing in a term plan is to ensure that your family has enough resources to take care of their needs and lead a comfortable lifestyle in your absence. A term plan with insufficient coverage may not take care of your family’s commitments entirely at a later date. This is one of the common mistakes to avoid while buying term plan. Ideally, you should evaluate the future requirements of your family and choose the sum assured accordingly.

You can use a term insurance premium calculator to ascertain the premium and adjust it according to your affordability. The thumb rule to decide the sum assured is that it should be 10 times the annual income of the policyholder. It may not beat the inflation, but in the meantime, the family can think of ways to substitute the policyholder’s income.

Waiting Too Long to Buy a Term Plan

Delaying the purchase of a term plan is among the term insurance buying mistakes to avoid. Life is uncertain, and calamities occur at any age. Do not postpone the purchase of a life insurance plan, thinking that it is not necessary until you are married and have children. On the contrary, it is ideal to purchase a plan when you are younger as you can avail of the life cover for a longer term which means a higher coverage at a lower premium. As you grow older, the likeliness of developing health issues is higher. You may end up getting a low coverage for the premium within your budget as you grow older.

Choosing the First Option Available

Compare plans and select the one that provides the best deal. Settling for a term plan from an insurance company that you are familiar with is one of the common mistakes to avoid while buying term plan. You can seek assistance from online insurance aggregators who facilitate the comparison of plans from different insurance companies. You can then choose a term insurance plan that aligns with your requirements and offers higher coverage for a lower premium.

Choosing Price Over Coverage

Getting misled by low premiums is one of the grave mistakes to avoid while buying term plan. We should understand low premium quotes are just a business promotion gimmick adopted by several insurance companies. There could be a lot of exclusions and other conditions that make a claim settlement complicated behind the low quotes. You should always go for term plans from reputed insurance companies that give a realistic premium quote without any hidden costs and conditions. You should also explore the motive behind the low premium benefits offered by the insurance companies before choosing a service provider.

Providing Incorrect Information

Even if you are buying a term plan for a short period, you should be honest in disclosing facts about your existing health condition and family medical history. Presuming that you may not develop any health issues in a short span, count among the mistakes to avoid while buying term plan. If, during the policy term, anything untoward happens and the cause of the death is the suppressed health condition, then the insurance company may dispute and reject the claim settlement, and the purpose of investing in the term plan will not be served. To avoid such a situation, you should provide accurate information when applying for the plan.

Choosing Too Many Riders or No Riders at All

Riders help you get the most from a term plan. However, it is not wise to make all the riders provided with the plan available. Thinking they are beneficial and including unnecessary riders can make your otherwise ideal plan expensive. Some of them may prove unreasonable at a later date. It is wise to examine the list of riders and choose the ones that are most relevant to you. Having too many riders or not opting for riders at all are evident mistakes to avoid while buying a term plan.

Overlooking e-insurance Options

Generally, individuals are comfortable buying insurance through the representative of a reputed insurance agent. They do not take the trouble of exploring options. E-insurance options have been catching up in recent days. While e-insurance is a time-saving and seamless option, it is also an advantage because online IRDA-approved insurance aggregators help you compare plans online and choose a plan that suits you the best.

They help you with options that provide maximum coverage for an economical premium devoid of hidden costs. With e-insurance, you also have the advantage of browsing through the policy terms of various plans and choosing the one that gives the most for the premium collected.  Ignoring e-insurance options can be included in the list of term insurance buying mistakes to avoid.

Shifting Without Considering Other Options

You should always think of the consequences before you cancel an existing term plan. Impulsively cancelling a term plan when you feel that it does not align with your requirements is one of the mistakes to avoid while buying term plan. If there is a gap between cancelling the existing term plan and buying a new one, you will have no coverage for the interim period, which is highly risky if something untoward happens during that time. So, even if you want to exit from the plan, do it after you buy a new one so that the life cover is not interrupted.

Not Reviewing the Plan Carefully

The mistakes to avoid while buying a term plan include not reviewing the plan carefully. You should understand the coverage, terms and conditions, discounts and add-ons available, claim settlement ratio, etc., before deciding whether the plan works for you or not. If you ignore these aspects, you may realise at a later date that you are not getting the most from the plan and may want to exit and go for a new plan, which may prove costlier.

Summary

A term plan is the best way to secure your family financially and have peace of mind that they can lead a comfortable life even when you are not with them. To get the most from the investment for your family’s future there are some mistakes to avoid while buying a term plan.  The most common of them are opting for a short term, inadequate coverage, not understanding the pros and cons of the plan, shifting from one term plan to another without paying heed to the consequences, focusing more on the cost than coverage, settling for the first option, providing inaccurate information, adding too many riders, etc. Avoid these term plan mistakes to ensure adequate coverage for your family so that you can handle all the financial obligations without stress in your absence.

FAQs on Mistakes to Avoid While Buying Term Plan

Q: What are the negatives to buying term life insurance?

The negatives to buying term life insurance are choosing shorter terms, inadequate sum assured, ignoring e-insurance option, buying the first option available, not comparing plans, adding too many riders, shifting from one plan to another without understanding the repercussions, providing incorrect information, delaying the buy, and not studying the plan before the purchase.

Q: Why do term insurance claims get rejected?

It is imperative to provide correct information while applying for a term plan. You will have to disclose all the information about your health condition and family medical history. If you pass away during the policy term and the insurance company discovers that the cause of the death is any existing health condition that has not been declared while purchasing the plan, the claim will be rejected. The plan will be treated as null and void. Your family will be deprived of the benefits and may have to face a financial crisis.

Q: What is the age limit for term insurance?

The age limit for term insurance is typically between 18 to 65, but it depends on the insurer. Some insurance companies provide coverage up to 75 or 80. Whole life plans provide coverage for life or up to 99 years.

Q: Should I review my term plan periodically to avoid potential mistakes?

Yes. You should review your term plan periodically to avoid potential mistakes. You should ensure that the term plan aligns with your requirements at all times. It should consider changes at every life stage, like marriage, new financial obligations, children, and inflation. Reviewing will also ensure that your policy does not lapse. It also explores the need for adding riders or other features so that the plan reinforces your evolving financial needs.

Q: Are there any hidden terms or conditions to watch for when purchasing a term plan?

Yes.  You have to study the terms and conditions before buying a plan. You should review conditions like the exclusions, premium changes, claim settlement ratio, renewal clauses, limitations concerning riders, etc. Read between the lines for hidden costs that may add up to the insurance cost.

Related Articles

Personal Accident Insurance: Buy Accident Insurance Policy Online

Term Insurance Riders and Their Benefits | HDFC Life

Buy Whole Life Insurance Policy Online in India 2025 | HDFC Life

What is Term Insurance? Definition & Meaning of Term Plan | HDFC Life

References

1. https://economictimes.indiatimes.com/wealth/insure/life-insurance/10-common-mistakes-people-commit-when-buying-life-insurance-and-how-to-avoid-them/articleshow/81883327.cms?from=mdr

2, https://www.forbes.com/sites/forbesfinancecouncil/2018/05/08/seven-big-mistakes-to-avoid-when-purchasing-life-insurance/

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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