Securing the future of our loved ones is a top priority for each one of us, especially for the times when we will not be around to support them financially. This is where investing steps in. Among the numerous avenues of investments, term insurance is one of the oldest and most cost-effective ones.

What is term insurance?

Term insurance is a life insurance policy meant to provide financial cover for a specific period, as per the terms and conditions of the policy. The nominee of the policy receives the benefit if the insured passes away during the tenure of the policy. People often perceive term insurance as the vanilla version of insurance products, offering financial security to cover their liabilities. Oftentimes, a single term policy serves the purpose well.

Is it beneficial to hold multiple term insurance policies at the same time? The answer to that question is subjective. While it is perfectly legal to hold more than one term policy at a time, the benefits would depend on factors like the age of the insured, composition of present liabilities, the likelihood of future liabilities, etc. One must consider these factors before holding multiple term insurance plans.

Here are some of the top benefits of holding multiple term insurance plans

Reduced premium

Though the premiums of term insurance policies are relatively lower, one can increase savings by obtaining multiple term plans. To illustrate, let’s assume a single term plan with a cover of Rs. 1 crore and with a tenure of 30 years. The indicative, annual premium would be Rs. 12,200. Consequently, the total premium that the insured would be paying for a term cover of Rs. 1 crore across 30 years amounts to Rs. 3,66,000.

On the other hand, let’s split the total coverage amount of Rs. 1 crore into 3 different, 10-year term policies of Rs. 50 lakh, Rs. 30 lakh and Rs. 20 lakh each. The total premium for the same coverage of Rs. 1 crore spanning 30 years would be Rs. 1,23,860.

This illustration can be summarised in the following table.

Single Term Insurance Policy for 30 Years Multiple Term Insurance Policies for 10 Years Each
Insurance Coverage

(in ₹.)

Annual Premium

(in ₹.)

Total Premium

(in ₹.)

Insurance Coverage

(in ₹.)

Annual Premium

(in ₹.)

Total Premium

(in ₹.)

1,00,00,000 12,200 3,66,000 50,00,000 5,020 50,200
30,00,000 4,030 40,300
20,00,000 3,360 33,360
1,00,00,000   3,66,000 1,00,00,000   1,23,860

The above example illustrates the potential to reduce the total outflow of money on the premium by opting for multiple term insurance plans.

Coverage as per the composition of liabilities

Another significant advantage of multiple term plans is the possibility of staggering the tenure of the plans as per the amount required to cover one’s liabilities in the present or the immediate future.

Building on the previous illustration, let’s assume that the insured is 30 years old presently and requires coverage of Rs. 1 crore over the next 30 years. He may not require the entire coverage at once, as his present liabilities may amount only up to Rs. 50 lakhs. Liabilities, like children’s education, home loans, etc., may increase later, requiring additional coverage.

In that case, choosing multiple 10-year term plans with different coverage amounts, say Rs. 20 lakhs initially, followed by Rs. 50 lakhs and finally, Rs. 30 lakhs would be a prudent choice. Top companies offering term insurance plans provide term insurance plan calculators on their websites for helping their customers plan their policies judiciously.

Enhancement of policies through riders

Riders are add-ons on the basic coverage offered by the insurance policies for an additional premium. Critical illnesses coverage, accidental death benefit, accidental disability benefit are some of the popular riders.

In the case of holding multiple term policies, the insured can opt for riders on some of the policies and obtain only the basic cover for the remaining. Consequently, the overall increase in the premium may be lower than that for a single term policy with the same total insurance coverage.

 

Conclusion

With smart financial planning, one can certainly reap the benefits of holding multiple term plans. With the advancements in technology, top insurers offer online term plans as well. Managing multiple term plans is now as simple and convenient as ordering groceries online!

Eve Nasir