Whereas most Indians are underinsured, it’s also true that it is fairly widespread to have a number of life insurance coverage insurance policies in India. That is extra the case with conventional insurance policy like these provided by LIC by way of endowment and a reimbursement plans.
I recurrently come throughout individuals who have a complete sum assured (cowl) of ₹10-20 lakh solely however they’ve cut up it into a number of plans of some lakhs every.
Usually, when a toddler is younger, dad and mom purchase a LIC conventional plan or two for them. One thing like a ₹3-5 lakh cowl by way of LIC endowment plans. When this youngster grows up and begins working, some relative or recognized individual will push him to buy a LIC coverage of his personal.
Not simply as life insurance coverage however to avoid wasting tax! And when the realisation happens that conventional plans are not any good, the identical individual lastly buys a time period plan. After a couple of years when his obligations improve (marriage, children, home), it turns into evident that the present insurance coverage will not be sufficient and therefore, there’s a want to purchase extra protection.
So, it’s completely positive to have a couple of life insurance coverage. Ideally, your life insurance coverage necessities are greatest met by way of plain time period plans. And if at any level you are feeling that your protection is insufficient, then you should buy one other time period plan to fill the hole in insurance coverage.
However make it possible for when you find yourself shopping for new life insurance coverage, you do inform the insurer about any of your current life insurance coverage.
The rationale for that is the HLV or Human Life Worth issue.
HLV decides most life cowl
The idea of HLV is a technical one and is utilized by insurance coverage firms to reach at a good worth of the appropriate life insurance coverage protection for a person. It calculates the approximate higher restrict of the life cowl that an individual ought to ideally have.
To simplify we will contemplate that HLV is a a number of of the annual earnings of the person. Although in actuality, there are a couple of different elements like age, medical circumstances, nature of the job, and so on.
So, let’s say that approx. The HLV issue restrict for a given age band is 15. This implies that you could have a most life insurance coverage protection of 15 instances your annual earnings. So, in case your annual earnings is ₹16 lakh, then 15 instances (HLV) of it will put a restrict of ₹2.4 crore on the life cowl (15 multiplied by ₹16 lakh earnings).
Now let’s say you have already got a couple of LIC insurance policies that you just bought a couple of years again value ₹30 lakh cowl and also you even have a time period plan of ₹50 lakh. So, your current protection is ₹80 lakh.
As per the HLV issue of 15 in your earnings ( ₹16 lakh), the utmost cowl you may have is ₹2.4 crore. So if you happen to now wish to buy a brand new time period plan to extend your cowl, then you may solely go for a most of ₹1.6 Cr (distinction of ₹2.4 Cr and ₹80 lakh).
For those who apply for a ₹2 Cr cowl, then the insurer will ask you to cut back your utility measurement to slot in the quantity arrived at by the HLV issue.
That was concerning the HLV issue.
Ought to I purchase a number of insurance policies as few could also be rejected throughout declare?
Previously, there have been circumstances of declare rejection by insurers and these get loads of media consideration each few months. So naturally, this performs on individuals’s minds that what if their declare will get rejected? Because of this, they wish to unfold their bets and cut up life insurance coverage into a number of plans as an alternative of shopping for one massive cowl.
So in the event that they want a canopy of say ₹1.5 Cr, they assume that purchasing 3 plans of ₹50 lakh every is best as even when one declare will get rejected, at the very least two will likely be honoured and ₹1 Cr will likely be paid to the nominees.
To be truthful, there’s nothing unsuitable with doing this. It’s completely positive to have a number of insurance policy. However these days, there’s now a really clear rule that claims insurance coverage firms can not reject life claims (for any motive in anyway) made on insurance policies as soon as the coverage has accomplished 3 years. This rule, which is relevant as legislation, has in itself considerably decreased the chance of declare rejection by insurers.
However it’s also your duty as a purchaser of insurance coverage to make all related disclosures and supply materials information to the insurers. Make certain to share your right age, nature of your job and life dangers (if any) at job, actual well being situation, earnings, household well being historical past in addition to the small print of your current life insurance coverage insurance policies.
To summarise, shopping for life insurance coverage isn’t a one-time exercise. In case your obligations improve or if you happen to at any level really feel that you’re not insured correctly, then please go forward, and buy an extra time period life cowl. However don’t cut up these into too many small elements as declare rejection doesn’t occur you probably have been trustworthy and correct along with your disclosures.
Dev Ashish is a SEBI-Registered Funding Advisor and Founder (Secure Investor). He supplies fee-only monetary planning and funding advisory companies to small and HNI purchasers throughout India.
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First Revealed: 30 Jan 2023, 12:12 PM IST