Money Saver India
The multiple term plan advantage

The multiple term plan advantage

Buying multiple term plans, preferably from different companies, is the smart way to manage your insurance cover. It allows you to cut your costs and guard against claim rejection.

Insurance is meant to ensure the financial security of your family in case of your untimely death. Therefore, the amount you should insure yourself for should typically be equal to what you will earn during the number of working years you have left. So a 40-year-old would need more insurance than a 55-year-old, who has just five earning years left. But if you purchase a policy at 40, how do you reduce your insurance expense without letting go of your coverage completely? Buying multiple policies is the solution.

Cutting insurance cost
Buying insurance via a term plan is much, much cheaper than buying it through an endowment, ULIP or child plan. But it isn’t that cheap either. For example, if you buy it from LIC of India at the age of 40, you’ll need to pay Rs54,160 a year for a cover of Rs80 lakh over 30 years. The value of this money will decrease 10 years hence, but you could feel you’re over-insured. Perhaps you’ve already covered your children’s education and wedding expenses and saved enough over the years to require a smaller cover. If you’ve purchased a single policy of Rs80 lakh, you’d have to either live with the full amount or do away with all the insurance. If you instead purchased multiple plans, say four policies of Rs20 lakh each, you have the flexibility of reducing your cost as you please. The cost of insurance would remain the same or almost the same with one or four policies. But even if you have to spend a bit extra early on, the savings can be significant should you wish to reduce your expense.

Insurer Age Rs80 lakh Rs40 lakh Cost difference
LIC of India 40 Rs54,160 Rs27,080 None
SBI Life 40 Rs35,973 Rs18340 Rs707
Birla Sunlife 40 Rs41,860 Rs21,417 Rs974

Diversifying risk
Term insurance can bring peace of mind, but what if the insurer disputes the claim? Insurers don’t have a spotless record on claim approval. Claims may be rejected with good reason, such as non-disclosure of illness at the time of taking a policy, but, as numerous court judgements prove, can also be with no good reason. Some insurers do have a better track record of claim settlement than others, but there’s no telling whose policy is rejected. For example, even LIC of India, which settles more claims than any other insurer, was recently fined Rs1 lakh by New Delhi District Consumer Disputes Redressal Forum for arbitrarily rejecting a claim. A good way to, therefore, guard against such arbitrary denial is to diversify across insurers. You could, for example, buy policies from two or more insurers so that even if one is rejected, the other may not be. While it is entirely possible for an insurer to reverse its decision based on rejection of the claim by the other insurer, it still is worth the effort. Be sure, however, to inform the second insurer that you already have term insurance from another company.

Here’s the percentage of claims settled by insurance companies over the past three years. Newer companies generally have a worse settlement record than older companies because of fraudulent ‘early-stage’ applications.

Insurer 2011-12 2010-11 2009-10
LIC of India 97.42 97.03 96.54
ICICI Prudential 96.53 94.61 90.17
HDFC Life 96.17 95.41 91.14
SBI Life 95.48 82.24 83.27
Kotak Life 92.1 89.3 86.97
Birla Sunlife 90.94 94.66 89.09
Bajaj Allianz 90.61 88.69 88.19
Max Life 89.84 77.96 65.51
Aviva 89.55 84.15 87.11
ING Vysya 88.82 90.49 89.3

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