A term plan policy is one of the most important financial decisions you can make for your family’s security. It ensures that in the event of your untimely demise, your loved ones will receive a financial safety net to continue their lives without major disruptions. However, while term plans are straightforward in concept, many people make critical mistakes when buying them. These mistakes can either lead to inadequate protection or unnecessary financial strain.
In this article, we’ll explore the most common mistakes people make while choosing a term plan, how to avoid them, and how tools like a term insurance calculator can make the process easier.
1. Choosing Inadequate Coverage
The biggest mistake is underestimating how much coverage your family needs. Many people opt for a smaller sum assured to reduce premiums, but this could leave dependents financially vulnerable. The coverage should be enough to take care of daily expenses, children’s education, outstanding loans, and future goals.
How to Avoid It:
- As a rule of thumb, your sum assured should be 10–15 times your annual income.
- Consider future inflation, debts, and big-ticket expenses when estimating the right coverage.
2. Ignoring Inflation
A policy purchased today may seem sufficient, but with inflation, the actual value of the payout could be much less in the future. For example, ₹50 lakh today may not hold the same value 20 years from now.
How to Avoid It:
- Choose a plan that offers an increasing sum assured option.
- Reassess your policy every 5–7 years to ensure coverage is adequate.
3. Focusing Only on Premiums
While affordability is important, making premiums the sole deciding factor can be a costly mistake. The cheapest plan may not always provide adequate features, flexible riders, or good claim settlement service.
How to Avoid It:
- Compare plans not only by premiums but also by benefits, claim settlement ratio, riders, and customer service.
4. Ignoring Riders and Add-Ons
Riders such as critical illness cover, accidental death benefit, or waiver of premium add significant value to your policy. Yet, many buyers overlook them, leaving gaps in protection.
How to Avoid It:
- Assess your lifestyle and health risks.
- Add relevant riders to strengthen your policy without buying multiple separate plans.
5. Not Considering the Policy Tenure
Some people buy policies for very short terms (say 10 years), which could leave them uninsured in their late 40s or 50s when insurance costs are much higher. Others may opt for excessively long tenures without assessing their real needs.
How to Avoid It:
- Ideally, your policy should last until your major financial obligations are over—such as paying off loans or children becoming financially independent.
6. Not Using a Term Insurance Calculator
A term insurance calculator is a simple online tool that helps estimate the right coverage and premium. Yet, many buyers skip this step and either over-insure or under-insure themselves.
How to Avoid It:
- Use a calculator to compare different coverage amounts, terms, and riders.
- Enter your age, income, debts, and family needs to get a realistic picture of your insurance requirements.
7. Not Disclosing Medical History Honestly
Some people hide pre-existing conditions or smoking habits to get lower premiums. However, this can lead to claim rejection later, defeating the whole purpose of the policy.
How to Avoid It:
- Always be truthful about your health and lifestyle.
- Insurers may still offer you a policy at a slightly higher premium, but it ensures your family’s claims will be honored.
8. Overlooking Claim Settlement Ratio
The claim settlement ratio (CSR) of an insurer indicates how many claims they settle versus how many they receive. Ignoring this metric could mean buying from an insurer with a poor track record.
How to Avoid It:
- Always review the CSR of the insurer.
- A higher CSR means a greater likelihood that your family’s claim will be settled without issues.
9. Depending Solely on Employer-Provided Insurance
Many salaried individuals rely only on the life cover provided by their employer. However, this cover usually ends when you leave the job or retire, leaving you unprotected.
How to Avoid It:
- Always buy an individual term plan policy in addition to any employer-provided insurance.
10. Procrastinating the Purchase
Another common mistake is delaying the purchase of a term plan. The older you get, the higher your premiums will be. Worse, health conditions could make it harder to get insured at all.
How to Avoid It:
- Buy a policy as early as possible to lock in low premiums.
- Even young professionals should start early, as it’s cheaper and ensures long-term protection.
11. Not Reviewing and Updating the Policy
Life circumstances change—marriage, children, new loans, or career growth can alter your insurance needs. Many people forget to review their policy, leaving them underinsured.
How to Avoid It:
- Review your policy every few years.
- Update nominees, coverage amount, or add riders as your responsibilities increase.
Final Thoughts
A term plan policy is one of the most cost-effective ways to ensure financial security for your loved ones. But to make it truly effective, you must avoid common mistakes like underestimating coverage, ignoring inflation, or neglecting riders. Tools like a term insurance calculator can help you arrive at the right balance between coverage and affordability.
By taking the time to evaluate your needs carefully and making informed decisions, you can choose a term plan that provides real peace of mind and long-term financial protection for your family.
