How Many Term Insurance Policies Should I Buy?

Considering term insurance in India, you might wonder whether you can buy multiple policies and how many would suit your needs. You can buy multiple-term insurance policies if you seek more excellent coverage for relatively lower premiums.

This provides several added advantages that your beneficiary can reap after your demise. Let's understand everything you need to know about owning multiple-term insurance policies in India.

Yes, you can buy multiple-term insurance policies in India. No legal or regulatory restriction prevents individuals from owning more than one term insurance policy. Also, you can buy these plans from the same or different insurance companies you choose. 

This allows you to handpick the best plan for your family’s financial security after your demise. However, you should consider certain guidelines before opting for multiple life insurance policies.

Let's say you are a young professional named Aman who recently got married and plans to start a family soon. Initially, Aman purchases a term insurance policy with a sum assured of ₹50 lakh as a basic financial security for the spouse at age 30 for a tenure of 35 years. However, as life progresses, Aman’s financial responsibilities grow due to new milestones.

Two years later, Aman and his spouse decide to buy a home. They take out a home loan of ₹30 lakh. Aman decides to purchase another term policy of ₹30 lakh coverage to protect the home.

In the 5th year, Aman and his spouse welcomed their first child. Understanding the importance of financial planning for their child’s education, Aman buys another term insurance policy with ₹20 lakh coverage.

Benefits Aman Gained from Having Multiple Term Insurance Policies

Adequate Coverage Over Time: As his responsibilities have grown, Aman’s coverage has increased from ₹50 lakh to a total of ₹1 crore (₹50 lakh + ₹30 lakh + ₹20 lakh).

Diversification Across Insurers: If Aman purchased each policy from different insurers, he would reduce the risk associated with dependence on one company and their claims process.

Layering for Specific Goals: Each policy serves a distinct purpose, one for a spouse, one for a home loan, and another for a child's education, ensuring Aman can meet all of these financial goals.

Tax Benefits: Under Section 80C of the Income Tax Act, Aman can claim tax deductions for the premiums paid on all three policies, helping him save on taxes while securing his family's future.

Note: If you decide to purchase multiple term insurance plans, providing all relevant information about your first policy to the second insurer is essential. Similarly, if you opt for a third plan, you must inform the third insurer about your previous two policies. This transparency is crucial for ensuring accurate underwriting and effective claims processing in the future.

The advantages of purchasing an insurance policy from different companies are as follows:

• It ensures that your nominee receives the claim amount after your death. Even if one company rejects their claim to a policy, they still have a chance of getting approval for other policies purchased from a different company.
• Different insurers have various claim settlement ratios. So, you can evenly spread the risk of claim rejections after your demise.
• Plans from different insurers have flexible features and offer a variety of coverages. This is beneficial as your nominee can receive money if at least one of the many policies covers it.
• You will have the flexibility of selecting different combinations of term insurance policies for maximum gains.

There are different types of term insurance policies available that you can combine and select for maximum gains.

Human Life Value (HLV)

Insurance companies calculate the maximum coverage you can get based on your Human Life Value (HLV). HLV is the economic value of your life, considering your income, expenses, age, and liabilities. Typically, HLV ranges between 10 to 20 times your annual income. 

For example, if your annual income is ₹10 lakh, your total term insurance coverage should not exceed ₹2 crore. You can calculate your HLV using the Human Life Value Calculator.

Disclosure of Existing Policies

Affordability

Claim Process

Policy Riders

Yes, you can claim multiple term insurance policies if you hold more than one. In the event of the policyholder's death, the beneficiaries can file claims with each insurance company where policies are held, and they will receive the respective death benefits from each policy.

However, it's important to disclose all existing policies when applying for new ones to avoid any complications or potential issues with claim settlements. Each insurer will independently assess and process their own claim.

To claim multiple term insurance policies, follow these steps:

Step 1: Notify each insurance company about the policyholder's death.

Step 2: Gather necessary documents such as death certificates, policy documents, and identification proofs.

Step 3: File a claim with each insurance company, providing the required documents.

Step 4: Stay in touch with the insurers to ensure smooth processing and address any additional requirements.

Step 5: Once the claims are approved, beneficiaries will receive the death benefits from each policy.

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