I learn today is Friendship Day. So Happy Friendship Day to all our readers! In the last post explaining the best term life insurance plans I told we will discuss why term insurance life coverage must be split.
As promised, here is the post on why you must split term life insurance coverage into multiple policies. I personally hold two online term insurance policies each with 30 years term. One from HDFC and other from LIC.
There is a reason it makes sense to split your life coverage. Let us try to analyze the reasons and logic. Based on that you can decide if it suits to split your life coverage or not. Remember each person’s situation is unique.
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Why Split term life insurance coverage
Reason # 1) Decision based on Age
Scenario1: Age above 35 years
You must take a term life insurance policy as long as you can and as early as you can. In 
case you have missed that and you’re above 35 years, then one policy might be sufficient.
If you’re above 35 years and have not purchased a term insurance plan, then age should not be a factor in your decision. Just jump to reason 2 or 3. If reason 2 or 3 is not applicable to you and you’re above 35 years, just purchase a single term insurance policy for 30 years.
Decide How much Sum Assured you need and purchase accordingly.
Scenario2: Age less than 35 years
If you’re less than 35 years, then it makes sense to split your policy. Most of the term insurance policies in India have a maximum period of 30 years.
For ex., if you’re 25 years old. The term insurance policy you take for 30 years will cover you only till age 55years. Most financial experts believe that 65 years is the ideal age till which you must have life coverage.
So you fall short by 10 years. Splitting life cover into two different policies makes sense here. One policy taken at age 25 years and other at 35 years. It does not matter you’re 20 or 27, you can take the second policy around 35 years. Here’s how it works.
Option1: You take 2 policies – one from age 20 to 50 years; another from 50 to 65 years.
| Age(yrs) | Term(yrs) | Life Cover | Active life cover | Annual Premium(Rs.) | Total Premium | ||
| 20-35 | 35-50 | 50-65 | |||||
| 20-50 | 30 | 1 crore | 1 crore | 1 crore | 1 crore | 5900 | 177000 |
| 50-65 | 15 | 1 crore | 42,200 | 633000 | |||
In this case you can see that you have Rs. 1 crore coverage from age 20-65 years.
The total premium paid =177000 + 633000 = Rs. 8,10,000
Option2: You take 2 policies – one from age 20 to 50 years; another from 35 to 65 years.
| Age(yrs) | Term(yrs) | Life Cover | Active life cover | Annual Premium(Rs.) | Total Premium | ||
| 20-35 | 35-50 | 50-65 | |||||
| 20-50 | 30 | 1 crore | 1 crore | 2 crore | 1 crore | 5900 | 177000 |
| 35-65 | 30 | 1 crore | 10,800 | 324000 | |||
Now if you notice, you see that during 35-50 years you have Rs.2 crore insurance. It is this age during which you might have a loan, child education, child marriage etc. S0 it makes sense to have higher life cover during this period.
The total premium paid =177000 + 324000 = Rs. 5,01,000
Conclusion: You can see that it is economical to choose option2 and buy second policy around 35 years. This also provides you with additional Rs. 1 crore coverage during crucial stage of 35-50 years.
Must Read: 12 tips to buy life insurance policy
Reason #2: Decision based on Financial commitments
You may have a home loan or large outstanding to any creditor. When you pass away, these creditors will first attach your assets and proceeds from life insurance.
So when your life insurance claim is paid, these creditors will first take away their share. This may leave your family with less or nothing from your life insurance. The very purpose of taking life insurance gets defeated.
Whenever you make a large credit commitment, it is wise to take insurance to cover it. This is where split term insurance coverage helps.
For eg.,
Option A – when you take home loan for Rs.30 lakh , you must also take a pure term plan for the same amount. You can stop paying premium or close this policy when the loan is over if you prepay the loan.
Option B – Another option is to make an add on to your existing plan. But the disadvantage with this option is you cannot discontinue the policy when the loan ends earlier.
Tip: Option A is better if currently you have only one term policy. Choose option B if you already have 2 policies. Too much splitting increases the cost of premiums unnecessarily.
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Reason #3: Different nominees to be paid
It is a common trend we see rising. With trend of nuclear families increasing, every person might have more than one nominee to take care. Some want to pay for their spouses and parents separate.
In some cases we see people take separate policies for their first marriage child and second-spouse family. So whatever your reason might be, if you feel your nominee might fail to take care of others you wish to care for then split your policy.
Might seem odd but this is a reality. Better split term life insurance coverage to have peace of mind. Don’t go for other types of life insurance in this case.
Another similar article from BusinessToday on splitting life insurance here
Basic tips when splitting life insurance
1) Do not buy any other life insurance . Learn the reason Why term insurance is best . Also the agent may not sell you term insurance most often. Learn my experience as an insurance agent here (leads to About Me page)
2) Do not take splitting too far. Two is the ideal case.Try to keep it to a maximum of 3 in really deserving cases. Too much splitting increases the cost of premiums. This is not what a financially smart person would like to do.
3) Buy from reputed institutions and go the online route.
4) Try to take an insurance as early as possible. When you earn your first salary is an ideal time.
5) The term of life insurance policy should be maximum possible. Usually take for 30 years term. But don’t extend beyond age of 65 years unless your financial situation demands it.
Do you agree with the logic to split term life insurance coverage into multiple policies? If not, tell us why in comments below. Check out other related articles on life insurance below.
Sir,
I am 30 yrs old. Is it advisable to buy 2 policies?
hi, i have PMJJBY and one other term policy, so in case of claim how can nominee submit original death certificate for both of them.
Please suggest
I have taken LIC e-term policy of 1.25 crore.
Can i assign 2 nominees with 50-50% share each?
How?
I visited LIC office. They are saying its not possible to have 2 nominees.
Where can i get correct information?
What to do?
Dear Parani,
I just turned 25 years and i have bought one term plan of max life with basic cover for 50 lakh and 40 years.
I am also planning for second term plan and one to go with lic for 50 lakhs.
Would it right time to go with second term plan now or should i wait.
If yes, then how much should i wait for the same.
Please advise
Vishal
Hi
Liked yourbpost very much sir
What is your take on money abck policy like endowment or retiremnt policy , iam 29 now planning for life insyrance and investment policy . Can I buy a term for one nomineenand endowment foe the other 1 cr +1 cr or is it better to buy single term policy of 2 cr and split it between two nominees.
Thank you
Hi Parani,
Is there any option to give 2 nominee names for one term policy?
Can i take two term policies ?
Thanks
Vara
Hi Vara
Yes, there is. You can also decide the percentage split. for eg., Like 60% to nominee 1 and 40% to nominee 2. Contact you advisor or insurer for help in filling the nominee registration.
Hi,
I have taken policy from LIC for 30 Lakhs but the processing is moving very slow. It is now over 2 months and still the processing is on. I wanted to split my policy between LIC and ICICI and I thought I would take the ICICI once LIC is done but now since LIC is taking such a long time, I want to proceed with ICICI ..
How do I declare my current proposal with LIC….I am very worried pls help
Hi Bala
Any reason why 2 months for processing. You can wait 2 weeks and go ahead with ICICI. Declare as one existing policy.
Hi,My age is 27 and annual income of 5.5lacs.I really find your post very much informative.
My question to you is that
1. I want to take term insurance of 1cr and also want to take term insurance for my wife who is not homemaker and not earning. I have shortlisted few of them like pub MetLife mera plan 50lacs + max life 50 lacs. Or Lic 50 lacs + on 50lacs PNB MetLife mera plan. Or 50lacs pnb metlife mera plan + 50lacs max life.
So according to you which combination is good?
2. I have only heard about pnb MetLife mera plan who only provide spouse coverage also. Is there any reputed insurer company that also provide same kind of benefit?
3. Thinking of taking health insurance package too. Can you suggest?
Mistake typo error: my wife is housewife and she is not earning now.
Can you please reply?
Hi
Any reason why you want to take coverage for wife when there are no dependents? You can go with any of two options. I would go with LIC+PNB among these two.
ICICI PRu HEalth Plan is good but bit costly. Can conider National or Oriental Health insurance as well. Definitely do not postpone health insurance package. Make sure Coverage is vare minimum 5 lacs if taking a family floater.
Bare* minimum
I want to take a term cover for 1 Cr and critical illness cover for 10 Lakh. Can I split this plan into 2. one with pure 50 L term plan and another with 50L term+10 L critical illness?
Hi Satya
Yes you can.
Hi Parani,
Great info you have shared above. I’m trying to zero in on the life insurance plan for my parents aged 58 & 60 years. Kindly help me choose a plan for them and clarify whether at this age they should buy term or any money back policy considering the max maturity age being 75 years in term insurance..Moreover I understand that they will have to pay a high premium at this age but kindly suggest me the policy which can provide them required benefits but not at the cost of very high premium as they wont be able to shell out a high amount.
Regards,
Ankita
Hi Ankita
First thing you must ask is do they need term insurance? I guess you’re earning now and not dependent on them. You have understood the premium will be very high at this age. At this age, if there are no dependents better not to take term insurance but concentrate on health insurance.
Money back policy is bad insurance at any stage in life .
I have took term insurance policy (LIC Jeevan Lakshya). But my agent split this policy in to two policy for the same period. Is there any issues during the time of claim. Or any other situations
Please advise
Thanks,
Shibin
Hi Shibin
Splitting the same policy into policy with same period is a bad approach. No issues but the second policy must have stated that you already have a prior insurance policy in the declaration.
Hi ,
I am going to be 38 years old next month . I am planning to buy a term policy for 2.5 crores sum assured and short listed the below companies ..
a) Met life
b) Kotak e-term
c) Max life
Would you pls let know which one among them is better interms of overall features ( premium , customer service , claim settlement )
Thanks in adv
Hi THomas
Please check below post which has some data that will help you to decide
http://www.smartmoneygoal.in/blog/best-term-life-insurance-plan-india/
your post is awesome.
can we trust the private company in life insurance because claim will be done in absent of the the insured person.are they as good as lic??
Hi Ramesh
All insurers are mandated by IRDA to pay claim. they have only 3 year window to withdraw your policy if they find something suspicious. Go with top 3-4 insurers if you’re purchasing a new term policy.
Dear Parani,
Thanks for the info on term insurances. Really useful info. I have question on buying split policy. If i buy a split policy, god forbid, incase of any death. Can nominees claim the sum assured from both the companies.
thanks.
Hi Abdul
Yes, claim will be paid by both insurance companies. However, make sure you disclose about your first term insurance when you take it with second company. Very important.
Hi Parani,
I am just turing 50, though highly late, I still wish to take another Term Insurance for 1 Cr.
I already have a T.I for 50 Lacs.
Is it advisable to go for a new policy at this age with high premia and if yes, which insurer would be your preferred one?
Thanks.
Hi Loknath
Please analyze if you really need term insurance and what your dependencies are. Based on that you must decide if you want another policy. Please do take one more insurance if you have huge outstanding debts at age 50.
Hi,
I am 38 and now feels like buying term insurance. I have gone through your blogs where you have covered lot of thing which got me update as soon as I read it. But Dear friend why not some suggestions for the late comers like me who are almost touching 40. What should they do at this stage. Which are the term insurance which supports them. Why not to split.
Please Reply.
Hi Anand
Sorry, but I feel you’ve delayed enough. I will take your suggestion into account and plan an article in future. But don’t wait till the article. Buy an online term insurance right now from either LIC or HDFC .
Your article is nice, but term plan with cover upto 75 years age is available with Aegon religare. Also As far as i know company has to pay the death benefit if we have regularly paid for 3 years as per latest IRDA guidelines. So claim settlement ratio does not matter. Now tell me is there any other reason to split policy in two policies. Or we should go for Aegon or some other company with 35/40 year tem.
Hi Deepak
Thanks for sharing your opinion. However, i do not agree to “claim settlement ratio does not matter”. It is one of primary things to check. There are various ways a claim can be rejected and the one who does minimum rejection will have proper procedure before& after taking policy with standard settlement procedures.
Yes, Aegon can be considered. It is really upto you to choose which insurer suits you best. The reasons for splitting insurance cover have been discussed in post already.