Do You Need Multiple Life Insurance Policies? Know Here…

October 27, 2021 Mutual Fund

For many years Life insurance has been helping families to live their lives independently and without compromising their standard of livings in the absence of a breadwinner. A term life insurance is the purest form of life insurance that offers maximum coverage at an affordable premium. This insurance money can help your family to pay all the expenses in your absence. However, people still get confused while deciding on the term insurance coverage and end up buying multiple life insurance policies. Hence, it is essential to know how much coverage is adequate for you and whether you need multiple life insurance policies.

With the passage of time our goals of life and financial needs change. And that is why with constantly increasing responsibilities our life insurance coverage should also need to increase. As many individuals buy a term life insurance policy at a very young age, the coverage becomes inadequate as they achieve new life stages.

Buying multiple life insurance policies is very common and completely legal. For example, your parents might have bought a whole life insurance policy for you when you were a minor. After becoming financially independent, you might have purchased your first term life insurance policy. With the change in lifestyles and growing family, you might have found the existing coverage insufficient and bought another policy or increased the coverage in the existing policy. In addition to that, you might also have a permanent life insurance policy to cover your remaining home loan. As you extend your family, you will need more coverage to cover the needs of a growing family.

Although there are no legal restrictions on the number of policies you can hold, when you buy a new life insurance policy, the life insurance company will ask you for the details of your existing policies, such as the insurance coverage, name of insurance company, policy number, etc. It ensures that you are eligible to get the proposed coverage. Therefore, it is necessary to apply for reasonable life coverage that is in accordance with your income.

Moreover, having multiple life insurance policies can become difficult to manage, especially as you grow older. Missing a single premium results in policy lapse. Moreover, your family will also need to keep track of the multiple policies at the time of filing claims. Therefore, instead of buying a new policy at each life stage, it is advisable to increase the coverage of your existing policy to match up with the increasing needs.

However, there are certain situations when it makes sense to have multiple life insurance policies:

1. Your existing policy does not allow you to increase the coverage:

   In every stage of life, your responsibilities towards your family increase. To ensure that your loved ones are financially protected in your absence, it is advisable to increase your life insurance coverage with increased responsibilities. When you are in a new stage of life, it is recommended to increase the coverage of your existing policy, instead of buying a separate policy to cover the new responsibility. Although most life insurance plans allow you to increase the coverage, there are some plans that do not allow this facility. If your existing plan does not allow you to increase the coverage, it makes sense to purchase a new life insurance policy for an additional coverage.

2. To diversify the risk of claim rejection:

   Life insurance claims can get rejected for various reasons, such as the occurrence of death in the exempted/excluded situations, delay in filing for a claim, poor claim settlement ratio of the insurance company, incomplete documentation, etc. If you have a single life insurance policy, your family will be completely dependent upon the claim acceptance of that policy. However, if you are covered under 2-3 different policies, then there is a chance that the claim may get approved by another insurer/s, and your family will not have to suffer from a claim rejection by one insurer. Therefore, it is advisable to have 2-3 life insurance policies to diversify the risk of claim rejection. However, you should not buy more policies than what you can easily manage.

3. To get more benefits:

   Nowadays, term life insurance policies come with various riders and add-ons that offer more than just a death cover. Riders like critical illness cover, an accidental death cover, etc. can be bought for a nominal increase in the premium. If your current plan does not offer such benefits or does not allow you to buy them with your existing plan, then it is a wise choice to buy a new life insurance plan that offers the benefits that you require.

Benefits of having multiple life insurance policies:

1. Multiple life insurance policies ensure more chances of claim acceptance as your family will have a backup protection.

2. The more policies you hold, the higher is the coverage. This ensures that your family will live a comfortable life without compromising on the standard of living even in your absence.

3. Knowing that you have made a sufficient procedure to protect your family and their future is secured even when you are not around will bring peace of mind to you.

Disadvantages of having multiple life insurance policies:

1. Having a lot of policies would be difficult to manage. You might forget the due date of premium paying of one of the policies, which then gets lapsed.

2. Filing multiple claims and keeping track of each of them can become a task for your family.

3. Multiple policies means multiple premiums. A single policy with a coverage of Rs 1 Cr will cost a substantially lower premium than four policies with a coverage of Rs 25 Lakhs each.

To Conclude:

Life is uncertain, no matter how hard you work, you can never be sure about what will happen in the next very moment. Consider the above mention factors before buying any life insurance policy and decide the coverage. Although having multiple life insurance policies is perfectly fine if you can manage them well, you will end up paying a lot more premium for the same coverage. However, having a single policy does not provide any backup in case the insurer rejects the claim. Therefore, it is advisable to have 2 to 3 life insurance plans, depending on your needs. Having a couple of policies can serve the purpose for many people unless they either have huge responsibilities towards their families or have no responsibility at all.

This article first appeared on PersonalFN here