Should You Have Multiple Life Insurance Policies?
Term insurance has helped many families stay afloat and live a dignified life in the absence of the earning member. It is a great tool to ensure financial security and can offer a high sum assured at an affordable term plan premium. However, a lot of people get confused when picking out a cover for their term policy. The constant dilemma of how much is too much and how much is adequate has been a cause of concern for many.
In truth, you can buy as many term plans as you need with no restrictions. Read on to know more about the same.
When can having more than one term life insurance policy help?
Having multiple life insurance policies can help in the following situations:
If your claim gets rejected by one insurer: Sometimes, your nominee’s claim might get rejected due to various reasons like incomplete paperwork, submitting inaccurate information on your health history, a poor claim settlement ratio of the insurer, etc. In these circumstances, having multiple term plans can offer your loved ones more protection. With multiple life insurance claims, at least one is bound to come through and aid your family in the future.
If your plan does not allow you to increase your cover with changing life stages: A person’s life and needs change every now and then. Most people buy a term policy when they are young as the premiums are the lowest for younger people. They might not be married or have children at this time. However, as they grow older, get married, and have children, they might require a higher cover. With age, your family’s requirements are expected to alter too. If your plan does not allow you to increase your cover, you can consider buying another life insurance plan.
If you want better benefits: Not all term plans offer additional features like riders1. For example, optional benefits like the critical illness rider1 can offer your health insurance under your term plan. If you do not find such an option in your existing term plan, you can buy another one.
What happens when you have more than one term life insurance policy?
Having more than one term insurance plan can offer you the following benefits:
Increased security: The more plans you have, the more secured your family is. Having multiple life insurance policies can ensure that your loved ones always have a financial cushion to fall back on. Regardless of whether their claim gets rejected, the insurance company shuts down, or they end up losing the insurance papers, they will always have a backup option.
More money: More than one term policy means more money for your family members. They can use this to purchase a house, travel, pay back the debts, study abroad, start a business, and so much more. They can live a comfortable life for a long time to come and not have to worry about their expenses.
Peace of mind: Having multiple life insurance plans can also ensure peace of mind. Your family members do not have to chase the insurance company in case of claim rejection. They can relax and use the money from the other insurance plan. This way, you can lead a stress-free life, knowing your loved ones are safe in your absence.
However, you can also find certain drawbacks associated with multiple life insurance policies, such as:
High premiums: The cost of purchasing more than one life insurance plan can be high. The more plans you buy, the higher is the burden of paying premiums. This can force you to cut down on other essential expenditure.
Confusion: Remembering the premium payments schedules of each plan can be hard and confusing. If you miss the due dates, you may lose your policy, resulting in a big loss for you and your loved ones.
Should you have more than one life insurance plan?
A term life insurance policy can secure your family members, but it also comes at a cost. Hence,it is strongly advised to look at all associated expenses of having multiple term policies.Living a frugal and restricted lifestyle in the present just to save for your loved one’s future can leave you frustrated and anxious.Hence, you should only pick multiple life insurance plans if you can afford to.
Another thing to remember is that the total of all sums assured should not be more than the Human Life Value (the value of a person’s life in financial terms). This is calculated by the insurer. If the sum assured exceeds your HLV, the insurance company can refuse to sell you another plan.
In addition to this, you should also try to ascertain your family’s needs in detail. Some experts recommend multiplying your gross income by 10 to determine the cover for a term insurance plan. So, if your annual income is ₹10,00,000, you would require a minimum coverage of ₹1 crore. Such a sum is considered adequate for most families and can cater to requirements, such as higher education, debt payments, routine lifestyle expenses, etc.
Moreover, most term policies offer an amount as high as ₹1 crore. For example, Tata AIA Term Insurance plans offer high sum assured at affordable rates. Additionally, Tata AIA Life offers the flexibility to increase the sum assured at crucial life stages with the ‘Life Stage Benefit’ to match your policy payouts with your rising needs.
If you can get such a high cover with one plan, you do not require another life insurance policy. However, if you find it hard to buy one large cover, you can invest in multiple term plans.
To sum it up
Keep the above factors in mind and then proceed to buy multiple term insurance plans. Remember that while there is nothing wrong with having multiple plans, it should benefit you in the long run and not hamper your present lifestyle with high premiums. It helps to take a realistic view of your family’s future needs and accordingly pick a sum assured amount. Make sure to also compare different term insurance plans and then select the one that is the most cost-effective.