Why you need multiple life insurance policies and how to manage them
Life insurance protects the nominees financially in case of death of the insured. One can take more than one life insurance policy across different insurance companies.
Need for multiple policies
During the course of one’s life, while the income of the person goes up, new responsibilities tend to get added. Hence one may have to purchase additional life insurance cover. The insured can hedge the risk of rejection of a claim with one insurance company by insuring life
Buying multiple policies
Details of all existing life insurance policies need to be provided at the time of filling up the proposal form for a new policy. Income documents need to be provided for the insurance company to assess the need for insurance. The new insurance company may reject the form, if the existing life cover exceeds the human life value estimate which is calculated on the basis of income of the insured up to about 20 times his annual income.
Traditional or whole life insurance
Traditional insurance plans are a type of life insurance plans that provide multiple benefits such as risk cover, fixed income return, safety and tax benefit. They cater to individuals with a low risk appetite.
This type of life insurance policies provides insurance coverage to policyholders for their entire life, never running out. In case of inevitable death of the policyholder, the insurance pay-out is made to the beneficiaries. A mix of insurance and investing, these plans are primarily used for wealth creation, offering a small cover by way of protection. Here are two types of traditional insurance plans and who these suit.
Endowment plans
In this type, the insured obtains a lump-sum along with bonuses on policy maturity or on death.
Moneyback plans
These provide life coverage during the term of the policy and the maturity benefits are paid in instalments.
Death/maturity benefit: The main difference here is that the payout is staggered and paid at specified, regular intervals. A bonus is also paid on maturity if the insured survives. It is used to achieve goals like a child’s education or marriage.
Moneyback plans
These provide life coverage during the term of the policy and the maturity benefits are paid in instalments.
Death/maturity benefit: The main difference here is that the payout is staggered and paid at specified, regular intervals. A bonus is also paid on maturity if the insured survives. It is used to achieve goals like a child’s education or marriage.
Premiums for both types
Endowment plans: The premium is much higher compared to that of a term plan and must be paid for a fixed number of years.
Moneyback plans: Like in case of endowment plans, the premium is high compared with term plans and is divided between insurance and investment.
Who do these suit?
These plans enforce a saving habit in the policyholder. Afraid of losing money due to lapsation, few policyholders miss the premium. So go for these only if you have no investing discipline because they will serve as a goal achieving tool in that case. But otherwise, since traditional plans offer low covers and low returns, they are best avoided. Even if your objective is tax deduction, you may look at better options and investments which are also low-risk, low-retu ..
Managing policies
It is important to keep your policies alive by regularly paying the premiums. It is also necessary to keep the nominations updated and make necessary changes whenever needed. Opening an e-insurance account becomes handy while managing multiple insurance policies. One can get a one shot overview of all the policies held by the person with this facility.
Point to note
It is extremely important to have an updated log of all the life insurance