Is there any benefit of having multiple life insurance policies? Just as most things in life, anything done in excess is not good. So having way too many life insurance plans is also not advisable. It should be need-based!
Insurance awareness is now rapidly increasing across the country with more and more individuals investing in life insurance plans to cover their financial risks. Many individuals are also buying multiple life insurance policies. But, is it right? Should you have multiple life insurance plans?
According to Deepak Yohannan, CEO, MyInsuranceClub, there is nothing wrong with having multiple life insurance policies. In fact, if you are doing your financial planning properly, you will end up having multiple life insurance policies.
“Your income keeps changing and you should be increasing your cover amount accordingly. Also, plans are given on the basis of an income multiplier. You should have adequate term insurance cover at every stage in life. You should plan for your retirement and you should look at investing – for all of these, there are insurance solutions which you can take,” Yohannan told FE Online.
However, Yohannan cautioned, just as most things in life, anything done in excess is not good. “So having way too many life insurance plans is also not advisable. It should be need-based. If there is a requirement, then go for it. Having 15-20 policies can lead to even tracking issues. Also, every time you take a policy you will have to mention details of the other policies which you have. Failure to mention all details can lead to death claims being denied,” Yohannan said.
Do you need multiple life insurance?
Aatur Thakkar, Co-founder of Alliance Insurance Brokers, says it is always suggested to have one term insurance plan and one additional policy to take care of family needs due to the increase in income and lifestyle. However, “it is possible to buy two or more life insurance policies, but it is completely up to the policyholder to figure out the insurance needs and which plan he/she should buy. Insurance companies have certain underwriting guidelines, which depend on the insured’s annual income, age and the potential to pay the premium. We suggest always keep yourself adequately covered up to your maximum eligible limit.”
“As the income increases with time, the insurance cover needs to be increased to match the lifestyle and needs of the family. At times one policy might not be sufficient to take care of all the needs keeping in mind the family’s size and requirements. One needs to know that a policyholder will be eligible for a maximum overall sum insured of 25-35 times of his annually CTC at a younger age and up to 10 -15 times of the annual CTC at a higher age. It is always advisable to always keep yourself adequately covered up to the maximum eligible limit,” said Thakkar.
Dhirendra Mahyavanshi, Co-Founder & CEO, Turtlemint, said, “With the rise in age, your financial liability would also rise. So, opting for a single life insurance plan in your 30’s and then hoping to be adequately covered even in your 50’s might not be such a viable option. Also, different life insurance plans have different purposes and multiple plans can surely be taken. But all policies need to be managed with the timely payment of premiums to keep them in force.”
Reveal Past Policies
Experts see life insurance primarily as a hedge investment and a risk mitigation tool. It is thus considered to be your Plan B. However, there could be other benefits such as collateral for loans as well.
“So, yes, you can always opt for multiple life insurance plans and you should, if you feel that you are under-insured. Just remember to disclose all information about your earlier life insurance plans at the time of opting for the subsequent ones, as underwriters would need to consider your overall life insurance coverage before issuing your plan. Also, you could opt for an e-insurance account (eIA) to manage your policies better,” Mahyavanshi said.
“You can also earmark each policy to a specific goal so that your financial planning is targeted. The life insurance protection that comes as an added benefit, would also provide financial security to your loved ones in your absence,” he added.
Can you claim two life insurance policies?
“Yes, an individual can file e claim in all the life insurance policies up to the eligible Sum assured he bought. Consumers need to be transparent with the insurance companies while claiming the Life Insurance policy. While claiming in the multiple insurance policies, your nominee should furnish all transparent and complete information about all the insurance plans bought by you. Every Insurance company has a defined set of claim settlement procedures which they will follow for settling the claim,” said Thakkar.
Multiple Life Insurance Plan Benefits
There are different benefits of buying multiple life insurance plans. Such as:
Complete financial protection
Multiple life insurance policies also ensure that you are optimally insured. If you have an existing plan where the coverage is not adequate, an additional policy would help in supplementing your existing coverage to offer you complete protection. Insurance is used as a “risk mitigation tool” and till you have adequate insurance coverage, you can always opt for additional plans.
“However, it is advisable to opt for a high coverage at a younger age, so that you can save on the premium, it might not be feasible for everyone. Or there could be a lack of intent or awareness. Thus, at a later stage in life, you can step up the coverage as your income and financial liability grows to be adequately insured by opting for another life insurance plan,” Mahyavanshi said.
The overall life insurance coverage depends on annual income, life stage, dependents, and liabilities as well as financial goals. However, the generic thumb rule states that you need to have a minimum of 10-15 times your annual income.
If you choose multiple maturity dates for multiple plans, you can get staggered pay-outs at different intervals. This also creates multiple income streams that can be used to match the timelines of your financial goals.
Different plans for different needs
Different financial needs require a different policy. For instance, term plans are needed for income replacement while child plans help in creating a secured corpus for your child.
“If you are looking for investment returns you can invest in ULIPs while pension plans help in retirement planning. Each type of life insurance policy can be used to fund a specific goal and so, with multiple policies, you can create a diversified portfolio that takes care of all your financial needs,” Mahyavanshi said.
Increased tax benefits
Life insurance plans enjoy tax benefits. The premiums paid are allowed as a deduction of up to Rs 1.5 lakhs. When you buy multiple plans, the aggregate premium is higher allowing you to claim the maximum deduction offered by Section 80C, thereby optimizing tax-saving benefits as well.