Is buying insurance supposed to be a one-time affair? Does it ever make sense to own multiple life insurance policies? Let’s find out.
There is no regulation restricting the insured from owning multiple life policies of different insurers. But do you need more than one?
Owning multiple life insurance policies do make sense under the following circumstances:
If you have long-term debt like that of home loans, it might make sense to split the cover.
- By matching the tenure of liabilities with that of life policies, you can potentially save on unnecessary cover.
Similarly, entrepreneurs and businessmen could take separate cover for their business loans.
Suppose a 35-yr old male takes a 15-year home loan of Rs 50 lakh. On an annual salary of Rs 10 lakh, he will be eligible for a cover of up to Rs 2 crore. He has two ways of taking a life cover. One, by taking a flat Rs 2 crore life cover till he turns 60 years. It would entail paying a premium of about Rs 24,737 every year for 25 years or Rs 6.18 lakh of premiums in all.
Alternatively, he can take a separate Rs 1.5 cr cover for 25 years and another policy with Rs 50 lakh cover (to cover home loan liability) for the tenure of 15 years. With the full repayment of the loan, the latter policy also expires. By doing so, net-net he will pay Rs 6 lakh worth of premiums, slightly lesser than taking a single cover.
Buying a life cover early in life saves on premium costs. However, with age, you also add new responsibilities. For instance, on marrying or becoming a parent, you need to provide for retirement and a child’s education which require a higher life cover.
It could be taken from another insurer while its policy tenure matched in accordance with that of the financial goal under consideration. Also, with age, as you accumulate assets, you also need lesser cover.
Owning multiple policies may help you calibrate your life cover across the life span.
Some experts recommend owning life cover across two or more insurers to diversify the risk of claim rejection.
After all, the claim settlement track record of insurers can also get worse over a period of time. However, it needs to be noted that the insurance industry has matured and most rejected claims are because of incomplete paperwork, false disclosures, or hidden facts.
So, the best hedge against claim rejection is not by owning multiple life insurance policies, but by making honest and accurate disclosures.
However, owning multiple life insurance policies also has its set of challenges:
Managing premium payments
First of all, you need to manage and pay the premiums of multiple insurers to keep them active. With increased digitalization, things are nevertheless simpler than before.
You can automate these payments and maintain an e-Insurance Account ( (eIA), an online insurance repository, which is absolutely free.
The life insurance premium increases roughly by 3-4% every year. So, if you plan to top-up cover later in life – to tackle different life goals – then your premiums ought to be higher. However, net-net you might still save a bit (like the above example) and can differ with cases.
How to buy two life covers:
When you are going for additional coverage with a second insurer, inform them about the existing plan.
The insurer may or may not reject new life cover based on whether your existing life cover exceeds the limit.
Human life value
One can normally make a claim from two life insurance policies up to 10-20 times their annual income. However, under no circumstances, can the cover put together be more than the human life value.
Human life value gives an accurate estimation of your cover limit and could be computed using online calculators. The new premium will be based on the age, the insured’s annual income, and premium paying potential at the time of applying for a policy cover.
Shortlist insurers with a consistent track record of high claim settlement ratios and whose premiums rates are reasonable. The cheapest ones might not necessarily be the best.
With age, as you accumulate assets and fulfill financial responsibilities, you may sometimes need lesser cover. By tying goals and liabilities to tenures of different life policies, you can steer clear of unnecessary cover.