As you move through different life stages, there's a good chance that the number of people dependent on you increases. For instance, if you get married, you are swearing an oath to protect your spouse and your future family through the different storms of life. However, our world is unpredictable, and an unfortunate event doesn't come with any warnings. These events can lead to quite a stressful time in a household. Along with this, if the family's sole earner is affected, it can hamper the house's financial stability. Fortunately, insurers have understood these situations and have launched the term life insurance plan.
What is the term plan?
A term insurance plan is among the most sought after plans in the country. Their fame can be attributed to the fact that it provides significant coverage to the policyholder's beneficiaries. The term insurance plan is essentially insurance coverage for the policyholder's loved ones and the individuals they wish to protect in their absence. It is advised that the sole earners of a family must get the term insurance plan, as in the event of something unfortunate, their family would be covered financially through this plan.
In aterm insurance plan, the policyholder gets insurance coverage for the plan's tenure. If they meet their untimely demise during the policy's tenure, their beneficiaries will get insurance coverage. However, if they survive the plan's term, then their policy would be over. In this plan, the policyholder will have to pay premiums for a pre-determined tenure. Among the various insurance plans available in the country, the term plans have some of the most affordable premiums. However, the premium costs on a term plan would depend on the individual's age when purchasing it. A young individual in their 20s would pay a low premium amount compared to an individual in their 30s.
Features of a term insurance plan:
Payout options: Under term plans, the policyholder's beneficiaries get the death benefit. One of the benefits of getting a term plan is selecting either a lump-sum payout or the payout at regular intervals. The policyholder will have to provide the payout information while purchasing the plan.
Discount: Many insurers offer high discounts to their policyholders if they opt for a enhanced sum assured. If the policyholder purchases the plan through the online mode, they can also get more discounts.
Premium payment term: Under the term insurance plan, the policyholder has the complete ability to pick a premium payment option. They can opt to make the premium payment either annually, semi-annually, quarterly or monthly. You can also pick the limited pay or regular payment options.
Tax* benefits: The premiums paid for the term insurance plan and the funds received as death benefit are eligible for tax* exemption under Section 10(10D) and Section 80C of the Indian Income Tax Act.
Riders#: You can increase the term plan's coverage by including different riders# in the plan. Riders# will help the policyholder by providing them coverage for specific situations like terminal illness cover, critical illness cover, accidental death benefit, waiver of premium, etc.
Because of their extensive features, many individuals have thought the question 'can we buy multiple term plans?'
Can a person have multiple term insurance policies?
Single word answer – YES!
Insurance companies allow their customers to purchase multiple term insurance plans. You can get multiple insurance plans depending on your insurance requirements.
What is the primary aim of a term insurance plan? Financial security for the family in your absence! A term insurance plan achieves that by taking care of the family’s financial requirements, including repayment of any liabilities, with the death benefit paid out. However, the kind of liabilities you have and their total value will keep fluctuating.
For instance, when you get married, your major liability is taking care of your spouse’s financial needs. These liabilities rise with the birth of your children or with you taking a home loan or a car loan.
Generally, you buy a term plan once you start a family. During the course of your life, as the responsibilities start piling on and the number of liabilities goes up, you can either increase the cover of your existing term plan or buy a separate term insurance policy to cover the added liabilities.
Let’s take an example here. Mr Sharma bought a term insurance policy with a sum assured of ₹50,00,000 at the age of 30 for a tenure of 35 years. The sum assured of this policy is enough to take care of the needs of his family with the current standard of living and level of liabilities while also accounting for inflation. However, 5 years down the line, Mr Sharma buys a house. He takes out a home loan of ₹35,00,000 to purchase the house. Now, in the case of Mr Sharma’s untimely demise, his family will have to repay ₹35,00,000, and they will be left with only ₹15,00,000 from the term plan’s sum assured, which is not enough.
So, to ensure optimum protection for his family, Mr Sharma avails of a separate term plan of ₹35,00,000 to cover the added liability of the home loan. This way, in case of his demise, the family has enough funds to repay the loan as well as have a secured financial future. This way, with multiple term plans, Mr Sharma ensured that his family has enough sum assured to fall back on.
If you've decided to purchase multiple term plans, you must provide all information to the second insurer about first policy. If you purchase a third plan, you will have to inform the third insurer about your previous two plans. You must be extremely mindful when buying term plans since there are specific restrictions for holding multiple plans. For example, the sum assured on every policyholder's policy must not go over the HLV (Human Life Value).
Human Life Value is an approximation of the family’s financial loss in case of the breadwinner’s demise. Insurance companies determine an individual’s HLV to ascertain the total life insurance coverage that a person can buy. So, it is crucial to inform your insurer about any existing life covers to avoid policy rejection or cancellations in the future.
Should you buy multiple term insurance plans?
While there is no rule against purchasing multiple term plans, it can be a bit strenuous on the policyholder. Some of the drawbacks of purchasing multiple term plans include:
Multiple term policies can lead to you paying more: If you weigh the cons and pros and consider your financial requirements will change as per your life situations, paying multiple premiums for different plans can be a bit expensive.
Multiple claims for policies: If your family has to file the claim, they will have to visit multiple insurers and handle filing the claim for multiple plans. It can be quite stressful for a family going through a difficult time.
Struggle of maintaining multiple policies: Holding multiple policies mean you have to pay multiple premiums, remember multiple dates for renewal, etc. It can be quite a struggle for policyholders.
It is advised that individuals must get a single plan covering all liabilities and promising the beneficiaries adequate monetary support. Holding a single plan that covers all liabilities can be quite simple and easy for policyholders.You can buy a single term life insurance policy and increase your cover whenever the need arises.
Summing up
Buying multiple term plans can seem like a decent idea for getting additional coverage. However, when you purchase multiple term plans, you will have to deal with the hassle of keeping up with their renewals and making multiple premium payments. Upholding multiple plans can be quite stressful for the policyholder. Hence, it is advised that individuals get a single term plan that provides extensive coverage and will provide the policyholder's beneficiaries with decent monetary support.
L&C/Advt/2023/Mar/0926
