If you are looking for a term insurance plan, you might have come across the option of splitting your cover into two or more policies from different insurers. That means you buy multiple policies for smaller amounts instead of buying one policy for the entire sum assured. For example, if you need a cover of Rs. 1 crore, you can buy two policies of Rs. 50 lakhs each from two distinct companies.
But why would you do that? What are the benefits of splitting your term insurance coverage? And how do you go about it? This piece will address these questions and help you understand why splitting cover is an excellent idea for your term insurance plan.
Benefits of Splitting Term Insurance Cover
There are several advantages of splitting your term insurance coverage, such as:
- Risk Diversification: Buying policies from different insurers reduces the risk of depending on one company for your claim settlement. If one insurer rejects or delays your claim, you still have another policy to fall back on. This way, you can ensure that your family gets the financial protection they need in case of your untimely demise.
- Cost Optimisation: By splitting your cover, you can also optimise the cost of your term insurance plan. Different insurers offer different premium rates for the same sum assured and policy term. You can save money on your premium payments by comparing and choosing the best rates from different companies. Moreover, some insurers may offer discounts or incentives for buying multiple policies from them.
- Flexibility: By splitting your cover, you can also enjoy more flexibility in your term insurance plan. You can choose different policy terms, riders, and payout options for each policy according to your needs and preferences. For example, you can buy one policy till your retirement age and another policy till your life expectancy. You can also add critical illness or accidental death riders to one policy and not to another. You can also opt for a lump sum or monthly income payout for each policy as per your family's requirements.
- Beneficiary Designation: Splitting your term insurance allows you to designate different beneficiaries for each policy. This can be especially useful if you have multiple dependents with varying financial needs. You can ensure that each beneficiary receives the intended financial support, whether it is your spouse, children, or other family members.
- Coverage Continuity: Splitting your term insurance provides added peace of mind, in case one policy lapses, or is terminated for any reason. You will still have protection from the other policies, ensuring you remain covered and financially secure.
How to Split Term Insurance Cover?
Splitting your term insurance cover is not a complicated process. You just need to follow these simple steps:
- Determine your coverage needs: The first step is determining how much coverage you need for your term insurance plan. You can utilise an online term insurance plan calculator, or consult an insurer's executive to estimate your human life value and financial liabilities. Consider your family's future expenses and goals while deciding your coverage amount.
- Compare different insurers: The next step is to compare different insurers and their term insurance plans. You can use online portals or aggregators to compare the features, benefits, premium rates, claim settlement ratio, and customer reviews of different companies. You should also check each plan's eligibility criteria, exclusions, and terms and conditions before buying.
- Buy multiple policies: The final step is to buy multiple policies from different insurers for smaller amounts. You can select the sum assured, riders, policy term, and payout options for each policy as per your needs and preferences. You should also disclose all the relevant information and documents to each insurer while applying for the plans.
Mistakes to Avoid When Splitting Term Insurance Cover
- Inadequate Planning: Failing to assess your future financial needs and haphazardly splitting coverage can lead to gaps in protection. Plan carefully to ensure every aspect of your financial life is adequately covered.
- Ignoring Tax Implications: Be aware of potential tax consequences when splitting policies. Connect with a tax advisor to understand the tax implications of your insurance decisions.
- Forgetting Policy Reviews: Periodically review your split policies to make adjustments as needed. Failing to do so may result in inadequate coverage as your financial situation evolves.
- Inconsistent Record-Keeping: Keep clear records of your policies, premiums, and beneficiaries. Disorganisation can cause complications for your loved ones in the event of a claim.
Conclusion
Splitting your term insurance cover is a smart way to optimise your financial protection and cost-effectiveness. By buying multiple policies from different insurers, you can diversify your risk, save money, enjoy flexibility, and avail tax benefits. However, you should also be careful about choosing the right insurers and plans that suit your needs and budget.