Splitting means breaking down a large block into smaller parts. Having two or more policies instead of one is called splitting of an insurance policy. If you are very particular about buying split policies, you may buy a normal term cover for 30 years or until retirement and buy another coverage that will cover you for life. While the first will ensure safety for family, another will help you leave a legacy for kids. By doing this you are not only creating a safety net for your spouse/dependant but also creating an inheritance for your children.
Do You Need to Split your Term Insurance Cover?
It depends. Let us take an example to understand how this works so that you can weigh the pros and cons carefully before making a decision.
Rajesh, aged 30 years, is a high-flying technical leader in a cutting-edge technology start-up and rakes in an enviable salary + stock options + bonuses. Rajesh owns a sprawling flat in the east of Bangalore, India’s tech hub, and pays almost a lakh in EMI each month. His kids study in a premium school and his family lives the American dream in India.
As he enters the prime time of his career, the only thought that crosses his mind is, “what if I am not around?” He has seen several acquaintances from his inner circle bite the dust and leave for their heavenly abode when they should be playing with kids and going on vacations.
At 22, when Rajesh graduated from a prestigious institute in Karnataka and took up a job, he opted for a life cover of Rs.20lakhs with a term of 20 years. He realizes, he was naive then.
At 30, with a family and huge debts on his head, Rajesh knows Rs 20 lakhs will not suffice to save his flat, let alone other expenses. Keeping this in view he is exploring buying 2 more policies worth a total of Rs.3Crore. In case of his demise, one policy will cover the balance home loan whereas the other policy can give the family some much needed financial support. The latter has a premium paying term of 30 years but offer protection until 85 years of age.
If your situation is similar to that of Rajesh, you may need additional cover. But it is not necessary to buy 2 additional policies unless there are clear benefits.
A term plan, specifically designed to cover home loans, that may terminate on repayment of the outstanding loan. You will need another policy to cover you even beyond that and preferably until 99.
Many people split policies hoping that one of the claims get settled and their families will not suffer. This is a flawed argument because all insurance companies are regulated, in India, by IRDAI under same laws.
The probability of rejection, if all records are clear, is minimal. Even in the unlikely event of a rejection, there are several levels of appellate authorities to address consumer grievances.
Five Disadvantage of Splitting Term Insurance Policies
The downsides of splitting term insurance are equally huge. These challenges can create administrative impediments and waste time. Some of the common drawbacks, of splitting policies, are listed below:
1. Multiple Premiums
If you own more than one policy, you have created more work for yourself. Remembering dates will be the first challenge you will have and more so if you have opted to pay at monthly frequency. If you own, say, 4 policies that you pay for each month, you are effectively making 48 payments, each year, towards premiums for insurance policies.
2. Different Insurers
Every insurer has its own unique portal to access policy details, make payments and download receipts. Keeping a tab on these processes, remembering the login credentials will add to your already long list of website credentials.
In the unfortunate event of your demise, your spouse/nominee will have to file claim applications with multiple insurers and follow-up until claims are settled. This can be stressful if the spouse has young kids or if the spouse is old and ailing as well.
4. Multiple Medical Tests and Documentation
Signing up for multiple insurance policies can be exhausting if all insurers trigger the need for medical check-ups. Besides undergoing similar medical tests multiple times, you will have to finish the documentation process for each of these policies, separately.
5. Loss of Discounts
Insurers may offer discounts on premiums for opting for the max possible Sum Assured. Splitting policies will cause loss of this possible discount.
Five Benefits and Features You Need in Your Term Insurance Plan
Before you jump into decision making on either a single insurance policy or multiple insurance policies, it is best to jot down what features and benefits that one should look for while signing up an insurance policy:
1. Accidental Death and/or Disability Riders
These are additional riders over and above the Sum Assured offered in the term plan. In the iSelect plan offered by Canara HSBC Life Insurance Company, a fixed sum is immediately paid out in case of accidental death or total permanent disability. In case of total permanent disability, the life cover continues thereafter but the future premiums are paid by the company
2. Return of Premiums
You may not have saved a huge amount for your old age. So, every penny counts. If the insurance company returns all the paid premiums on completion of the term, you will benefit from receiving your money back.
3. Joint Life Insurance
Instead of buying two separate policies for yourself and your spouse, you must have the option to add your spouse to your policy itself. A joint policy is cheaper than buying two separate policies.
4. Increasing Sum Assured
You cannot afford a large cover now. But with increasing earning potential, you may be able to. If the policy gives an option to increase the Sum Assured as you progress with your life’s milestones, you will save money because this will still be cheaper than buying a new policy later.
5. Limited Premium Pay Option
iSelect Smart360 Term Plan is a versatile term plan from Canara HSBC Life Insurance, which offers every possible benefit you can assume from the best term insurance plan. You can opt for increasing life cover, or request increment on your life cover.
The plan even offers a 99 years coverage with an option to pay the premiums till only 60 years. So, you can have the same term plan running after retirement towards your legacy.