While it is legal to buy several policies, the question of doing so has no fixed answer. If you are thinking of buying a life insurance policy other than your existing one, here are some crucial aspects you should consider:
The number of policies you need depends on personal and financial factors.
Life insurance depends on personal factors like:
- the number of dependents you have
- the different stages/milestones/needs/goals of your life;
And financial factors such as:
- your income that decides how much coverage you get under a policy
- your financial capacity to pay the premium
For instance, if you have a few dependents, like parents/siblings, you might be able to get simple term life insurance that gives a death benefit to keep them covered in your absence.
But if you have many dependents or life goals, such as setting up a business, paying for a child’s marriage/education, or buying a new home, you might need separate life insurance plans to give payouts at the times you need it.
There are both pros and cons to buying multiple life insurance policies.
Once you assess your personal and financial needs, the question of buying multiple life plans remains. The pros and cons to it can help you come to a decision.
The pros:
1. Buying many life insurance policies can help you save on premium paid for increasing the extent of coverage under an existing policy. However, this depends on the insurance company.
2. You can discontinue the policy on completion and get a new one for another for changing needs. For instance, if you buy a term life insurance plan for 10 years, you can buy another life insurance plan, such as a savings plan or a retirement plan. However, if you choose a life insurance plan for 30 years at a stretch, apart from your payout being delayed, you might have to pay a penalty charge, give up the premiums paid and forego the death benefit or other benefits payable under the policy.
The cons:
1. Buying new policies means you will have to go through underwriting again, get fresh medical check-ups, and in a few cases, pay more premiums.
2. Buying multiple policies might increase the chance of claim rejection. To understand why your claim can face rejection, you have to understand the effect of a factor called the Human Life Value (HLV) estimate on life insurance. This estimate is imposed by insurers and limits the coverage you receive under a policy to 20-30 times of your annual income. If an insurance company finds that your existing plan meets this limit and provides the necessary coverage, it may lead to rejection of the application for a new one.
Buying multiple policies from different insurers is not advisable.
Insurance companies require full disclosure of relevant information before you buy a policy. If you apply to more than one company, you risk the rejection of your application from all the companies you apply to. This is because the companies in question might suspect you are looking to increase your coverage beyond your HLV or get more protection than you actually need. So, it is advisable to stick to one insurer.
Conclusion:
There is no conclusive answer to whether you should buy multiple policies. It all depends on your financial needs and whether a single policy suffices them all. If it does not, you can consider buying more than one policy. However, if you get a plan that protects you and your loved ones at every stage of life, like Kotak Life Term Plan, a single policy can work well.
