Term insurance plans can be an effective way to secure the financial needs of your loved ones in your absence. But first, you need to decide whether to purchase multiple term plans or go for a single one. Keep reading to know the pros and cons of buying multiple term plans.
A term insurance plan covers the policyholder for a certain period against regular premium during the policy tenure. High coverage at a low premium makes such plans highly popular among policy buyers.
While some people tend to purchase a single term plan, many prefer buying multiple term plans. You should carefully weigh the pros and cons of buying multiple term plans before taking any decision.
Advantages of Having Multiple Term Insurance Plans
You may have purchased a term insurance plan of lesser coverage at a young age. However, as you grow old and raise a family, your responsibilities increase, and you might find your current coverage amount inadequate for your dependents.
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Furthermore, you might have been constrained to take lesser coverage earlier because of low liquidity. Now that you are financially more stable, you may want to increase your coverage amount.
You can consider taking another term plan to fill the gap between the required and the present coverage amount in such scenarios.
Savings on Premium Payments
Instead of paying a huge premium on a single term plan, you can purchase multiple term plans at different rates with small premiums over time.
For example, buying a huge term plan at the age of 21 can put a huge premium payment liability on you. Instead, you can buy a term plan with lower premium payment while you are young and buy additional term plans as you grow older.
Therefore, you will not have to start paying a huge premium every year since the beginning of your career.
Higher Number of Insured Persons
You can consider buying different term plans for different members of the family to increase the number of insured persons.
For example, instead of buying a single HDFC life term insurance of Rs 1 crore for you, you can consider buying two different insurance policies of the same plan of Rs 50 lakh each for you and your spouse.
Reduces Risk of Unsettled Claims
While the risk of claim rejection is very low in the case of honest disclosure of facts, there can be a marginal probability that the claim is unsettled or takes time for settlement.
In such cases, it helps to have multiple term plans as it is very unlikely that all the claims get rejected at a time.
Flexibility in Surrendering
Despite all the careful financial plannings, there can be some unforeseen circumstances, such as healthcare expenses, investment decisions, etc. that can compel you to cut back on your premium payments to stabilize your finances.
In such a situation, having multiple term plans helps as you can consider surrendering some of your term plans instead of surrendering your single term plan and forfeiting all your insurance cover at a go.
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Disadvantages of Maintaining Multiple Term Insurance Plans
Renewing Multiple Plans
Maintaining multiple term plans means that you need to remember the due dates of all the policies. Furthermore, you will have to go through as many claim settlement processes to claim the sum assured.
Multiple Fund Allocation
You need to be more judicious in allocating funds for multiple premium payments every year. Furthermore, the additional premium payments might strain your finances if your income does not grow at a healthy rate in the next few years.
Human Life Value (HLV)
HLV is the present value of all your future finances, including your income, expenses, assets and liabilities and it is determined by your insurer. The total coverage of all your policies can not be more than your HLV.
The advantages of having multiple term plans can far outweigh the usual benefits of a single plan, provided that you plan your finances properly. Also, consider the insurer’s reputation and the additional riders while deciding the term plans.
Remember, the underlying philosophy of purchasing a term plan is to protect your family financially, and multiple-term plans can help realize this objective.