Term insurance is a long tenure-led insurance policy that ensures that the dependents and family members of a policyholder remain financially intact even after the demise of the policyholder.

As important it is to buy term insurance, it is equally significant to sign up for a term insurance policy with the right sum assured . The sum assured should be sufficient enough to ensure that the regular needs and long-term goals of the family are fulfilled in sync with future inflation. However, it is quite common that one can’t assess the corpus needed at the time of purchase 20-30 years early and may end up purchasing a term insurance plan with a sub-optimal sum assured amount.

Since there is no top-up facility in term insurance like in health insurance, the policyholder can add multiple term insurance plans depending upon his / her needs. It is legitimate in India to have multiple term insurance plans as it comes with various benefits such as bigger claim amount, different benefits and safety for the future.

While you plan to go for another term insurance plan, the applicant can look for a different company to buy their second plan. Different companies have different features, benefits, inclusions and exclusions. . Thus, it is beneficial to select separate companies for separate plans. However, it is always mandatory for the policyholder to disclose about an existing term insurance plans at the time of taking a new one.

Why multiple plans

While multiple term insurance plans adding to a big cover may become a little expensive than a single term insurance plan, they come with a bouquet of advantages. Diversifying term insurance between multiple insurers is also a better idea when the cover is large. Because, at times, a higher coverage of say ₹1 crore may get delayed in getting settled at the time of claim whereas a claim for an amount lesser than ₹1 crore may get easily settled. Moreover, based on the different underwriting policies of each company, the permitted sum assured amount may vary. For instance if the underwriting doesn’t permit ₹1 crore of sum assured amount due to health conditions, in such a scenario, a person can opt for multiple term insurance plans to get the desired amount.

Additionally, if a person, having multiple insurance policies, feels any burden in paying for term insurance or he doesn’t need the high corpus amount by the age of 50 years due to completion of family duties, then he/she can surrender a few plans out of the multiple plans without losing the entire term insurance support.

Also, the insurance industry is constantly evolving and so are the products being offered. A term insurance product conceived and purchased 20,10 or even 5 years earlier may be a simpler product compared to products with new features currently available. This includes covers for spouse, accelerated payments on critical illness, conditional premium waiver, additional pay out in accidental death, and children benefit riders all available within term insurance plans. Depending on the evolution of one’s financial/personal needs one can choose a term plan which complements them and reinforces the existing term plan.

Loans are another reason to consider buying a new term insurance. Home, business or other long-term loans may have been accrued after the initial term plan purchase. Relying on original term insurance alone may rob the dependents of eventual benefits if an additional term loan is not purchased that is equivalent to home or business loan that are unhedged.

The term insurance sum assured amount can’t exceed more than the Human Life Value (HLV) of the policyholder. It is the monetary value of the person based on income, savings and liabilities. These days, life term insurance companies offer insurance coverage depending upon the age of the insured. For instance, 18-35 years old person can get 25times of their annual income, 36-40 years old person is eligible for 20 times of their annual income and 40-50 years old can get 10-15 times of their annual income. The policyholder, however, has to provide proof of annual income to avail multiple policies.

The author is Founder & CEO, PolicyX.com, an IRDAI approved web insurance aggregator.

(This is a free article from the BusinessLine premium Portfolio segment. For more such content, please subscribe to The Hindu BusinessLine online.)

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