Ruchi SrivastavaA term insurance policy is a financial safety net that protects against the risk of untimely death, offering financial support to the family left behind. Due to the affordable coverage provided by term plans, many people opt for multiple policies to increase their coverage amount. But can nominees file claims from more than one term insurance policy?
‘Yes’! it is entirely possible to have multiple-term insurance policies, and many people choose to do so for various reasons. While a single-term insurance policy provides financial protection to your loved ones in the event of your demise, combining multiple policies can help you achieve a more comprehensive and tailored coverage plan. But how does it work, and what are the benefits and potential drawbacks? In this blog, we’ll dive into the concept of holding multiple-term insurance policies and help you decide whether it’s the right approach for you.
What is a Term Insurance Policy?
A term insurance policy is a form of life insurance that provides financial protection for a defined duration, referred to as the policy term, which can last from a few years to several decades. Its primary purpose is to deliver a death benefit to the specified beneficiaries if the insured individual passes away during the coverage period. One of the key benefits of term insurance is its cost-effectiveness; premiums are generally lower compared to whole-life or universal life insurance because term policies do not build cash value and are focused solely on providing risk coverage. If the insured dies within the policy term, the beneficiaries are entitled to a predetermined death benefit, which can assist in covering various financial obligations such as mortgage payments, educational expenses, and everyday living costs.
Features of Term Insurance Policy
1. Payout – In term insurance plans, the beneficiaries of the policyholder receive the death benefit. A significant advantage of choosing a term plan is the flexibility to select either a lump-sum payment or a payout in regular installments. The policyholder must provide the payout preference when purchasing the policy.
2. Premium – With a term insurance plan, policyholders have the freedom to choose their premium payment schedule. They can decide to pay premiums annually, semi-annually, quarterly, or monthly and may also opt for limited pay or regular payment options.
3. Tax Benefits – Premiums paid for term insurance and the death benefits received are eligible for tax exemptions under Section 10(10D) and Section 80C of the Indian Income Tax Act.
4. Discount – Many insurers offer substantial discounts to policyholders who choose a higher sum assured. Additionally, purchasing the plan online can lead to further discounts.
5. Additional Coverage options – Policyholders can enhance their term plan’s coverage by incorporating various additional features. These features offer extra benefits for specific situations, such as protection against terminal illness, critical illness, accidental death, and the waiver of premium payments.
Benefits of having Multiple Term Insurance Policies
Choosing to hold multiple-term insurance policies offers several advantages, making it a strategic choice for many policyholders:
- Tailored Coverage: Each policy can be tailored to meet various life stages and financial objectives, providing a more specific and effective safety net.
- Adaptability: You have the flexibility to modify coverage amounts and policy durations as your needs evolve. For instance, a 20-year policy may cover you until your mortgage is settled, while a 10-year policy could be designed to address your child’s education expenses.
- Cost-Effectiveness: Instead of purchasing one high-coverage policy, dividing it into smaller policies with different terms can sometimes lower your overall premium costs.
- Simplified Management: Managing multiple policies allows for improved financial planning, as you can choose to renew or terminate a policy based on your changing needs.
Requirements for Claiming Term Insurance Policies
To successfully claim a term insurance policy, several conditions need to be met:
- Disclosure of Existing Policies: If you hold multiple policies, it is essential to inform the insurance companies about the existing plans when purchasing a new one.
- Policy Tenure: The claim is generally payable if the life assured passes away during the policy term.
- Nominee’s Role: The nominee must file a death claim by submitting a completed claim form along with necessary documents, such as the policy bond, identity proof, and bank account details.
- Accidental Deaths: For accidental deaths, a police FIR is required as part of the claim process.
Limitations of Holding Multiple Term Insurance Policies
While holding multiple term insurance policies offers certain benefits, there are a few potential downsides to consider:
- Higher Premium Costs: The combined premiums for multiple policies can become expensive and may put pressure on your finances if not budgeted carefully.
- Increased Complexity: Handling several policies can be challenging, especially when keeping track of renewal dates, premium payments, and various claim processes.
- Complicated Claim Process: In the event of your passing, your beneficiaries would need to submit claims with each insurer, making the process more time-consuming and burdensome.
Strategies for Managing Multiple Term Insurance Policies
- If you decide to opt for multiple term insurance policies, consider these strategies to make the most out of your coverage:
- Staggered Policy Durations: Choose policies with varying durations, such as 10-year, 20-year, and 30-year terms. This approach ensures comprehensive coverage during crucial life stages, while allowing some policies to lapse as your financial obligations diminish over time.
- Gradual Increase in Coverage: Start with a lower coverage policy if you are early in your career with fewer financial commitments. As your income and responsibilities increase, you can add additional policies with higher coverage amounts to match your evolving needs.
- Diversify Insurers: Purchase policies from different insurance companies to mitigate the risk of claim denial from a single provider. This also gives you greater flexibility to switch providers if needed.
- Regular Policy Review: Periodically assess all your policies to ensure they still align with your current financial situation and future goals, as life circumstances and insurance needs can change over time.
Final Thoughts
Holding multiple term insurance policies can be an effective way to ensure comprehensive protection for yourself and your family. This approach offers greater flexibility, increased coverage, and improved risk management. However, it also demands thorough planning and periodic evaluations. By assessing your financial objectives, responsibilities, and current coverage, you can decide if having more than one term insurance policy aligns with your specific needs and circumstances.
Source : msn.com
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