Term insurance in any form is an absolute necessity and should be treated as such if you have dependents and liabilities to worry about. However, as responsibilities grow, some may find their term life insurance coverage to be lacking in terms of effectively serving future financial needs. Therefore, if you are looking to purchase a second or even a third term insurance plan, you should be aware of the pros and cons before doing so.Read more
Before addressing this aspect, it is important to first establish if you can even have multiple term insurance plans in India. With inflation on an increasing trend and growing responsibilities with age, deciding the amount of coverage some 20-30 years before could result in a sub-standard sum assured amount. Therefore, once you reach an age where you realize that you need bigger life insurance coverage, you have the option to invest in other term plans.
Here are some pros of having multiple term plans as a necessary impetus towards your decision to invest in more than one policy.
Above all other factors, the one reason you should have multiple term insurance covers is to equip your dependents with a corpus big enough to tackle any high capital financial obligations. Be it paying off outstanding loans or child education, the combined proceeds from all the term plans should be able to replace your income and cover these expenses in your absence.
The insurance industry in India is not the same as it currently is even a decade back. There are new private insurers coming into the mix and introducing some novel features in their term insurance product offerings. Products that were designed earlier, now come with features such as joint-life covers, critical illness add-ons, premium waiver benefits, return on premium option, among many others. As your needs evolve, you can look for newer products that fit your bill.
An important perk of having multiple term life plans is that even if one insurer rejects a death claim request for not being able to meet its criteria, the other insurer may not. This is why it is important to diversify your plans among different insurers. Further, if the underwriting criteria of one insurer does not allow you a cover of high worth, you can get to the same amount by diversifying the sum assured among multiple term plans.
Possibly one of the key benefits for people with high liquidity needs, proceeds from multiple term insurance plans can serve to fulfill debt payouts. Now, if you find yourself in a position wherein you no longer require the benefits of a few plans, you have the flexibility to surrender those. In such as case, you won’t have to continue paying the premiums for these plans while keeping the more significant term life covers in force.
The only major drawback of having multiple term insurance plans is the possibility of running into high premiums than required for a single policy. Say, for instance, you have bought two term insurance plans both with a high sum assured, you will obviously be paying the requisite premiums for each. You should know that most of the term plans are pure protection policies with no maturity benefit. Therefore, you are running the risk of losing a considerable portion of your money on premiums, which otherwise could have gone into savings. The difference could especially be significant in the case of smokers, who are already charged higher premiums.
Furthermore, note that you shall have to meet certain criteria to be able to invest in two or more term plans.
The first is the Human Life Value. It is the sum total of your worth per your assets, savings, and liabilities. While it is always recommended to have comprehensive coverage to secure the financial future of your family, the final amount depends on your human life value (HLV). Even if you purchase multiple term life insurance plans, the combined coverage cannot exceed your human life value.
Second is your insurability at the time of purchasing the next term life cover. The insurance company will assess the risk of insuring you and ask you to undergo medical examinations.
The third and final criteria is to declare all your existing term insurance plans at the time of purchasing the new one. If you fail to do so and the insurer finds out about it at the time of claims, your nominees’ claim request for the benefit shall be rejected.
Once you have made sure to cover all the above mentioned pointers, you are in a good position to buy more term insurance policies.
Having multiple term insurance plans allows you to address the capital needs at different stages of life, thereby ensuring comprehensive coverage throughout the needful times. Considering that there are no legal impediments towards having multiple term insurance coverages, it would be prudent to invest in a couple of such policies. This will help maintain the financial sanctity of your family in the case of any eventuality and rising inflation.
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