3 Mistakes To Avoid -Term Life Insurance

As much as it is important to make plans for your family, it is equally important to ensure that they are achieved even if you are not there.   And Term Life Insurance is the only financial tool to protect your family and your plans for them in your absence. Hence, it is an absolute necessity for every earning individual of a family.   However, while buying a term life insurance or if you have one already, there are a few things that you need to be mindful of.  

1. Not buying enough coverage to replace income

While buying term life insurance, the topmost question in our mind is – How much cover do I need? Though a very popular number these days for term life insurance policy is Rs 1 crore, it is a random number without any proper math behind it.   The things that need to be considered while arriving at an amount of coverage are – future household expenses (minimum36 times your current monthly expenses), your liabilities, important goals, and life events, and if married, then a retirement corpus for your spouse.   First, calculate the total amount your family would need considering all the factors mentioned.   Next, if you have any financial assets – mutual funds, provident fund, fixed deposit, etc. – deduct that from the amount needed. This is the easiest way to come to a number while determining your term life insurance coverage.   Do not pick a random number no matter how big it sounds, instead, do your math correctly to find out how much coverage you would need.  

2. Not reviewing term life insurance cover

You might believe that the term life insurance policy coverage that you have is enough for life, but that’s not the case. What may sound sufficient today, might not be adequate for your future needs.   Hence, it is necessary to review your term life insurance every 3rd year, to check whether it still matches your requirement.   Then if you feel your life insurance needs are more than the coverage, you can buy another policy to fill that gap.   Situations when you need to review your term life insurance policy: • When your parents or spouse stops working • When you take a big loan like a home loan • When you get married • When you have a child • Change in your income level If anyone in the family (other than you) has contracted a major illness and household expenditure goes up due to treatment.  

3. Getting term insurance for too short/long period

If you buy term insurance for too short or a too-long period it completely loses its purpose. Let’s see how.   Let’s assume you buy a 20-year policy at 30, and its tenure would end when you are 50. At that stage, you still would have several milestones to be achieved like children’s higher education, their marriage, a sufficient retirement corpus for your spouse, etc. These goals need to be protected until they are achieved.   Similarly, buying a term life insurance policy for too long a tenure is also pointless. Suppose you have bought a term life insurance policy that will provide you cover till you are 80, but you retire at 60.   There are two points to consider here. Considering the life stage, most of your life goals would have been achieved by then, hence the life insurance requirement is not high. Second, you have to keep paying the premium amount for 20 years, even though you will stop working.  


At every life stage of an individual, the requirement may vary but having a term life insurance cover is a must. But if one is not careful enough, it might not provide enough benefit to the family in his/her absence even though he/she might have bought the right product.   Hence, to ensure that your family is financially protected when you are not there, be mindful of a few things regarding your term life insurance – like buying early and also enough cover, its tenure, and reviewing it when necessary.  
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