Common mistakes to avoid when using an online term insurance calculator

By Team Asianet Newsable | First Published Jul 16, 2024, 4:18 PM IST

One of the biggest mistakes is not taking into account the inflation rate when calculating the sum assured.

Mumbai (Maharashtra) [India], July 16: Have you ever wondered how to select the best term insurance plan? You may have come across online term insurance calculators, which are quite useful tools. But are you utilising them properly? While these calculators can make it easier to choose a term insurance plan, including options such as term insurance with return of premium they must be used appropriately to get the most accurate and advantageous results. Let's look at some frequent mistakes individuals make while using these calculators and how to prevent them.

Not entering accurate personal information

When using a term insurance calculator it's crucial to enter accurate personal information. Age, health complications, and habits greatly influence your premium rate. If you input incorrect data, the calculator will provide inaccurate estimates. For instance, if you indicate a lower age than you are, or do not declare certain pre-existing medical conditions, the suggested premium will be lower than what you are likely to pay. This disparity may result in financial shocks later when applying for the policy.

Ignoring inflation impact

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One of the biggest mistakes is not taking into account the inflation rate when calculating the sum assured. Inflation reduces the purchasing power of money, making what is sufficient today potentially inadequate in the future. For instance, if you believe that coverage of Rs 50 lakh is adequate today, it might be insufficient 20 years from now due to inflation. Hence, it is always important to consider inflation when using the term insurance calculator.

Overlooking coverage needs

It is therefore crucial to accurately evaluate your liabilities and your dependents’ requirements. Most individuals fail to estimate their coverage needs, thus exposing their families to severe financial risks. When using the calculator, it is important to take into account all liabilities, including loans, children's education, and other expenses. This thorough assessment ensures that the agreed amount will adequately provide for your family when you are no longer around.

Not comparing multiple plans

Relying on just one term insurance calculator is limiting. Insurance companies offer diverse coverage, and the cost of premiums may also differ. There is an option to use several calculators provided by different service providers to compare the rates. This also helps you determine the most suitable term insurance policy given your circumstances and budget, avoiding the risk of missing out on superior policies or cheaper premiums.

Skipping the term insurance with return of premium option

Excluding the term insurance with the return of premium feature can be a mistake. Some calculators may not clearly label the option as term insurance with a return of premium. This feature can be very advantageous since it returns all the premiums paid if the policyholder survives the policy period. Always check if this option is available and consider its advantages. It may lead to slightly higher premiums but has the benefit of a fixed return, making it worth considering, especially for those who want more financial security.

Not considering policy duration

The duration of the policy is also very important when making this decision. If you choose a term that is too short, your family may find themselves with no coverage when they need it. On the other hand, a term that is too long would mean that one has to pay more premiums than one needs to. Utilise the term insurance calculator to identify a policy tenure that is best suited to your financial plans and your dependents’ requirements.

Ignoring riders

Optional rider benefits such as critical illness cover, accidental death benefit, and waiver of premium can greatly improve your policy. Still, these options are often neglected when working with a calculator. Assess your requirements and incorporate appropriate riders in your term insurance policy. These extra protections can offer full coverage and assurance.

Underestimating lifestyle choices

Smoking, drinking, and taking risky behaviours will also influence your premiums, among other factors. These aspects should be represented accurately when using the term insurance calculator. It is wrong to state that your lifestyle is different from what it is since it will lead to low premiums but can lead to problems during the processing of the claim when the insurer discovers the truth.

Choosing the lowest premium only

It is not always wise to go for the policy with the lowest premium. It is always good to go for companies with low premiums but one should not forget about the benefits offered, the claim settlement ratio and the customer satisfaction level of the insurance company. A few dollars extra with a reliable insurance company may mean better protection and an efficient claims process to support your family.

Forgetting about tax benefits

The premiums paid for term insurance can be availed as deductions under Section 80C of the Income Tax Act. Make sure you account for this when using a term insurance calculator. This consideration can assist you in determining your net cost of premiums and the tax benefits of the policy.

Ignoring employer coverage

If you currently have term insurance coverage through your employer, factor this into your equation. Insurance that your employer offers can minimise the supplemental insurance that you require to get. However, note that employer coverage may not be adequate or transferable, so consider whether you require additional insurance.

Not seeking professional advice

While term insurance calculators are useful, speaking with a financial advisor can give tailored advice and help you avoid typical problems. An adviser can assist you in understanding complicated jargon, comparing various plans, and ensuring that the insurance you choose is in line with your long-term financial objectives.

Ending note

Using an online term insurance calculator is an excellent approach to estimating rates and selecting the best coverage for your requirements. However, it is critical to prevent typical errors such as providing incorrect information, neglecting inflation, and failing to consider the need for extra riders. By keeping these ideas in mind, you may make the most of these resources and select the term insurance plan that best protects your family's financial future. Remember, making an informed decision is always the best option!

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