If your financial planner is telling you to buy just one huge term life cover and be done with it, you better question him about his reasoning behind such an advise. Also, the question you need to ask yourself is whether one term life insurance policy is enough to cover all the needs of your dependents once you are gone? The immediate answer is, No!
There are multiple reasons why experts suggest that buying more than one life insurance policy is a good idea. Let us find out what these reasons are.
The reality of the life insurance industry is, if you correctly give all the information and undergo all the required check-ups, your claim will not get rejected. However, it is also true that claims do get rejected even if the probability of this is negligible. But, in case you end up being one of the 0.001% of the population whose claim got rejected, imagine what would happen to your dependents.
Having a contingency plan for such a scenario is the best reason for having multiple life insurance policies. If the claim gets rejected by one company and approved by another, the entire sum is not lost and your dependents will still have at least some financial stability. Also, if the claim gets approved by one company, it will force the other company to revaluate its decision.
Instead of buying one policy that covers the next 30/40 years, you can consider buying life insurance multiple policies with different maturities. This allows you to cope with the changing needs of the different phases of life. You might buy one policy today, but that will be aligned with your current needs and liabilities, and those might change with time. For example, instead of taking a 1 crore cover for 40 years, you can break it into two smaller ones of INR 30 lakh for 20 years and 70 lakh for 40 years.
It is not necessary to have only term plans in your insurance portfolio; rather you can also go for endowment and ULIPs. Diversifying your insurance policies with the ones that provide assured investment returns is always a good option. However, discontinuing an endowment or ULIP policy before maturity might result in losses as investment insurance products reward long term participation and discourage early exits. Therefore, if you buy one of these, make sure in it for the long run.
So, the major benefits of having multiple covers can be summarised as; having a contingency plan against rejection, diversification across insurers, adjustment of insurance cover with your changing liabilities and assured returns on investment. Therefore, before you dive into the insurance market and start shopping, take a moment to plan your insurance portfolio wisely and then start investing.