Owning Multiple Life Insurance Policies: Need, Risks and More

The insured is not prohibited by law from holding numerous life insurance policies with various insurers. But are more ones necessary?

Owning multiple life insurance policies does make sense under the following circumstances:

Running debt

It might make sense to split the cover if you have long-term debt, such as home loans.

You may be able to avoid paying for extra insurance by aligning the duration of liabilities with that of life insurance.

Similarly, business people and entrepreneurs could get separate insurance for their business loans.

Let’s say a 35-year-old man borrows Rs. 50 lakh for a 15-year home loan. He will be qualified for a cover of up to Rs 2 crore on an annual salary of Rs 10 lakh. He can take a life cover in two different methods. One is to purchase a flat-rate Rs. 2 crore life insurance policy until he turns 60. It would mean paying an annual premium of approximately Rs 24,737 for 25 years, totalling Rs 6.18 lakh.

As an alternative, he can get two different policies: one with a Rs 1.5 crore cover for 25 years and another with a Rs 50 lakh cover (to cover the obligation for the home loan) for 15 years. The latter policy also expires with the full repayment of the loan. Net-net, he will spend Rs. 6 lakh in premiums due to doing this, which is a little less than purchasing a single cover.

Life goals

Early life insurance purchase results in lower premium prices. But as you become older, you also take on more obligations. For instance, when you get married or have children, you have to pay for retirement and a child’s education, which calls for a better life insurance policy.

It might be obtained from a different insurer as long as the policy term matched the duration of the financial goal being considered. Additionally, as you become older and amass more assets, you require less insurance.

You may be able to adjust your life insurance coverage across the life span by having multiple policies.

Diversify risk

To spread the chance of a claim being rejected, several experts advise holding life insurance from two or more insurers.

After all, insurers’ track records for resolving claims can deteriorate with time. However, it is important to keep in mind that the insurance market has developed, and the majority of denied claims are due to insufficient documentation, fabricated information, or hidden facts.

Therefore, the best defense against claim denial is truthful and precise disclosure, not possessing several life insurance policies.

Nevertheless, having numerous life insurance policies comes with a unique set of difficulties:

Managing premium payments

To keep numerous insurers active, you must first manage and pay their rates. Despite greater digitalisation, life is now easier than ever.

These payments can be automated, and an e-Insurance Account (eIA), a free online insurance repository, is also available.

Higher premium

Every year, the life insurance premium rises by approximately 3–4%. Therefore, your rates should be greater if you intend to add coverage later in life to pursue various life goals. Overall, though, you might still be able to save some money (like in the aforementioned example) and circumstances may vary.

How to buy two life covers

Inform insurer

Tell the second insurer about the current plan when you apply for additional coverage with them.

Depending on whether your current life insurance exceeds the limit, the insurer may or may not reject new life insurance.

Human life value

Typically, a person can claim up to 10–20 times their yearly income from two life insurance policies. However, the worth of the cover cannot ever exceed the value of human life.

Using online calculators, you can calculate human life worth to get an exact estimate of your coverage limit. The age of the insured, their yearly income, and their ability to pay premiums will all be taken into account when determining the new rate.

Shortlist

Choose insurers whose premiums are affordable and who have a history of strong claim settlement ratios. The most affordable options might not always be the best.

Final Thoughts

You may occasionally require less insurance as you become older, as you amass assets and take care of financial obligations. You can avoid extra coverage by connecting objectives and liabilities to the terms of various life insurance policies.