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Friday, December 16, 2016

Should you buy Multiple Life Insurance Policies?

Are you hesitant to invest in a number of covers because you feel you are not equipped to handle multiple policies or you are not sure whether there would be any issues with your claim? Read on to find out if and when you can avail a death benefit from more than one policy.

Find your Life Insurance need?
Before you decide to get into one or more policies, the first thing you got to be very sure of is the amount of cover that you and your family needs. Remember that insurance is just a risk mitigation intrument and its only purpose is to cover financial risk arising out of risk to your death.

Select the right Life Insurance company
After having found out your insurance need, you will need to select the right insurer too. Here is what might help you --> What is the most critical factor to select a life insurance company?

Legality of more than one Life Insurance Policy
First thing, it is perfectly legal to acquire more than one life insurance policy and claim from all of them.

Precautions to be taken in case of multiple life insurance policies
While it is legal to claim from multiple life insurance policies, it is a definite must to take the following precautions to avoid any hassles during claim settlement:
1) You have disclosed all material facts in each of your policies.
2) While applying for a new policy, you must definitely disclose the previously bought policies to the insurer so that they are cognizant of your existing coverage. Not doing so can result in misrepresentation which can be a ground for rejection of death claim.
3) The combined sum assured of all your life insurnace policies put together does not exceed your Human Life Value

What is Human Life Value
When a life insurance company receives an application for a policy, a process of risk assessment, called ‘underwriting’ begins. In medical underwriting, health related risks are assessed. In financial underwriting, insurability is assessed by reviewing the applicant’s income and existing life cover. Based on these details, which you are asked to submit when you apply, your insurers calculate your Human Life Value. The combined death benefit of multiple policies cannot exceed this amount.

Merits of holding multiple insurance policies
Contrary to the public perception, there are many benefits of holding multiple life insurance policies vis-a-vis a single policy that covers you completely.
(1) Firstly, it is a hedge against claim rejection. While full disclosure is usually all that’s needed to ensure your claim is accepted, things can go awry. The last thing you would want is your family not receiving financial support in your absence. You can spread your risk by taking more than one policy from different insurers with different claim settlement ratios.
(2) Secondly, it will help you with milestone based protection planning. You take life insurance based on your financial dependents. 

Demertis of holding multiple insurance policies
(1) It goes without saying that taking more than one policy also means you’ll be paying additional premium. Thus, this decision has to be planned for properly.
(2) Secondly, it may be cumbersome to have to keep track of multiple policies, but this is not a process you can afford to do away with.

You can purchase as many life insurance policies as you want depending upon your financial needs and life situation. All you need to keep in mind is that the policies you hold contribute significantly towards your personal goals.


Manoj Arora
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