Many of us already know about the benefits of life insurance and why you need a life insurance policy as an essential component of your portfolio.
Owning multiple life insurance policies is the same as owning multiple versions of other assets. It is legal and perfectly acceptable. However, if you have multiple policies in your kitty, then there are a few aspects that you should always keep in mind. This article will take you deeper into owning multiple policies and how you should handle them.
Key things to remember while buying multiple life insurance policies
You should have clearly defined reasons for investing in multiple life insurance plans. Here are the factors that you should remember before signing on the dotted line:
- Coverage for multiple liabilities – Investing in multiple life insurance policies can be a rational decision if you have several loans to repay. Suppose you have a home loan of Rs. 50 lakh for 20 years and a business loan of Rs. 30 lakhs for 10 years. In this case, you may purchase three life insurance policies in total. The first one can be for 20 years with a sum assured, which is at least Rs. 50 lakh. The second one may be one for 10 years with a sum assured of Rs. 30 lakhs. The final policy will have the sum assured worked out based on your family’s future financial requirements and should last till your retirement at least. In this manner, you can ensure coverage for your family’s financial future and your existing liabilities.
- Investments in different life objectives – This can be a major reason for buying multiple life insurance policies. If you have varying and numerous life objectives, you can insure them, each with smaller policies.
- Lowering or upgrading Coverage with Age – Your family may grow along with your earnings as you age. This means that you might need to purchase additional coverage. You can purchase a new life insurance policy based on your current responsibilities, which has a scope of increasing the sum assured periodically. Life coverage upgrades are mostly necessitated by marriage, childbirth, etc.
- HLV (Human Life Value) – While you can purchase multiple life insurance policies, you should remember the maximum limit outlined by the HLV (Human Life Value). This will be based on your annual income and may go up to 15-20 times the same depending on how many years are left for your retirement. This is called the income replacement method. The insurance company will always inquire about existing coverage when you invest in a new policy. Your life coverage amount may be rejected if your existing coverage surpasses the HLV threshold or is equal to the same. However, annual income proof should be furnished for getting multiple insurance policies in this case.
- Cost of Policy Management – When you have multiple policies in your portfolio, you must invest time and energy in managing them. Keep the premium costs in mind as well. You may use an e-insurance account to manage your policies.
- Getting Backup Against Claim Rejections – Many people purchase multiple insurance policies to hedge against possible rejection of claims. This strategy ensures that the nominees will get at least a basic amount. However, the chances of claim rejections go down automatically if policyholders provide all details transparently as asked for by the insurer. Simultaneously, it may also happen that if you have not given accurate information and one insurer rejects a claim, then the others may also follow suit. Hence, this should not be a major reason for investing in multiple life insurance policies.
Conclusion
Hence, you should buy multiple life insurance policies only if they are relevant towards meeting your family’s financial goals, liabilities, and current coverage requirements. While this strategy may be costlier overall, if you can afford the increased premiums, you can certainly consider the same, taking some of the aspects mentioned above into account. Adding life coverage also helps you get access to evolved and latest versions of insurance policies with newer riders and other coverage features. Remember that, as mentioned, the total sum assured or coverage amount cannot surpass the HLV (Human Life Value). Hence, be transparent about your income, age, the risks and nature of your employment/job, existing plans and coverage, medical details, family medical history, and other details while buying a new policy.
