Term insurance is frequently seen as a crucial component of a financial portfolio by professionals. But have you ever wondered why this is the case? There are various reasons for this, including the fact that it is the most basic type of life insurance policy available in the market. So, let us take a closer look at what term insurance means.
What Is Term Insurance?
Term insurance is an insurance plan that is simple and easy-to-understand terms in which you pay a fee in exchange for a life insurance policy (guaranteed sum assured). If you die within the policy term, the policy nominee receives the insurance payment amount specified in the policy. And if you survive the maturity period of this policy, you will receive nothing.
In response to changing client demands, insurance companies have offered term insurance with maturity advantages known as term plans with a return of premium. The operating component of such plans is as old as any traditional term plan, with the exception that if the policyholder outlives the policy period, they receive the full amount of premiums paid at policy maturity. Because of this, term insurance with a return of premium benefit has a higher premium than standard term coverage.
However, just as it is critical to get term insurance, it is also critical to select the appropriate sum insured to ensure that your family member's long-term goals and monthly costs are met in accordance with future inflation. However, estimating the sums needed in the long run is tricky. And, because term insurance policies do not have a top-up facility like health insurance, policy owners end up purchasing many term insurance plans based on their needs and to have broader coverage for their family members' safe future. When purchasing a new term insurance policy, the policyholder must declare any current term insurance policies.
Let us now understand a few pros and cons of purchasing several term insurance policies and determine if it is worthwhile to get multiple term insurance policies.
The Benefits Of Purchasing Multiple Term Insurance Policies In India
Purchasing numerous term insurance policies from different insurance providers offers a variety of advantages, features, inclusions, and limitations. As a result, if you don't obtain the required benefit from one insurance provider, you may acquire it from another and meet your needs.
If you want more coverage, purchasing numerous term insurance plans from different insurance companies may be the best option because a term plan with a greater coverage level of Rs 1 crore may be delayed. A claim for a lower sum, on the other hand, may be readily authorised.
Choosing numerous term plans may also be advantageous because the permissible sum guaranteed may differ depending on the underwriting policies of each insurance provider. For example, if the underwriting does not allow Rs 1 crore of the sum assured amount due to health issues, you can select numerous term insurance policies to obtain the needed sum assured amount.
Assume the policyholder is burdened by having to pay premiums for many term insurance plans. In such circumstances, they might surrender one or more plans without losing the benefits of all term plans.
Because the insurance market is always developing and expanding, another advantage of purchasing various term insurance plans is that you will receive the most up-to-date benefits and features. For example, term insurance purchased ten or twenty years ago may be insufficient for your current needs or may not include new features such as spouse coverage, children benefit rider, supplementary pay-out in accidental death, expedited payments on critical sickness, or premium waiver benefit. As a result, based on your changing financial and personal needs, you can select those that complement and strengthen your existing term insurance.
The Disadvantages Of Purchasing Several Term Insurance Policies
Multiple term insurance policies provide numerous benefits, but they are more expensive than a single term insurance plan.
The term insurance policy's sum guaranteed amount cannot exceed the policyholder's Human Life Value (HLV). HLV is a monetary value assigned to a person based on their income, liabilities, and savings. Life insurance companies now provide term plan coverage based on the age of the insured. A person who is between the age of 18 and 35, for example, is eligible for term insurance coverage equal to around 25 times their yearly income; similarly, a person between the ages of 40 and 50 can acquire the sum assured equal to 10-15 times their annual income.
In simple words, term insurance is a long-term commitment that ensures financial security to your close ones in case you are not there. With all of these perks in place, as well as others in the case of term insurance, clients choose to purchase many term insurance plans in order to enjoy more benefits and have greater coverage.