Are you sufficiently insured through multiple insurance policies?
Ankita was not sure whether to buy another insurance plan as she was already covered by her company, but the sum was not enough. Would they allow us to claim from two different insurers was her another doubt? If you also have similar doubts and apprehensions, read our post to get an insight whether getting insured from multiple insurers serves the purpose or not?
What It Means to Get Multiple Insurance Policies?
Primarily the objective to buy more than one insurance policies is to sufficiently cover oneself. Example, if you have a health insurance with a cover of five lakhs, that may not be sufficient with rising expense of medical treatment. Hence, you opt for another one with a cover of ten lakhs.
Should I opt for Multiple Insurance Policies?
The short answer is YES, and the long answer is – first you need to evaluate how much you may need
- In case of your death and you are the sole earner of the family
- In case You are disabled, and you are the sole earner of the family
- In case, your family member is caught up with major illness
To evaluate each of the conditions we have taken up examples to explain –
In case of your death and you are the sole earners of the family
While purchasing a life insurance, get answer to – how much money your family would need at the time of your death to
- Meet Immediate obligations
- To sustain the household in future.
- Calculate your human life value to your family
Calculate Your Needs
Atul age 34 is the sole earner of the family. He has a kid of two years old and right now his wife is not working. Let’s see how much insurance cover he needs.
| Family Expenses | |
| Final Expense | 30000 [Includes funeral cost, medical cost, etc.] |
| Outstanding Debts [ other than your mortgage] | 150000 |
| Outstanding Mortgage | 1500000 |
| How Many Children require College Funding | 1 |
| Child Age | 2 years |
| Type Of Schooling [Public/Private] | Private |
| Total Income Your Family Would Need If You Died Today | |
| Total Income Needed by your family, excluding taxes to sustain | 1000000 |
| How Many years Income Should Be Provided | 18 [Considering your child starts earning at 20 years of age] |
| What is your current savings and investments (not including retirement funds)? | 300000 |
| What are your current retirement savings? | 1000000 |
| What is the value of the life insurance in force on your life? | 0 |
| In case your Spouse Works | |
| What is your spouse’s annual income? | 1000000 |
| How many years does your spouse expect to work? | 20 |
| Your Spouse Tax Bracket | 20 % |
| Estimated Inflation Rate | 9 % |
| After Tax Net Investment Yield | 6 % |
| The Total Sum Needed by Your family would be | 5,362,185.97 |
Do you have a full life insurance cover of 5,362,185.97 with the one or multiple policies you brought? If yes, your family is secured if not, reevaluate your insurance policies to get the minimum cover for your family.
In case you are disabled and you are the sole earner of the family
In case, you met an accident, due to which you are unable to work and earn you need to be prepared and make sure to have enough liquidity that could meet your necessary expenses.
Calculate Your Needs
Here is an example –
Ankit 32 is looking for insurance in case he meets with an accident and is physically disabled to resume work. Let’s see how much amount he would need –
| Monthly Income Available | |
| Income from current group disability coverage | 0 |
| Income from current individual disability coverage | 0 |
| Income from spouse or other family members | 20000 |
| Monthly investment income | 20000 |
| Monthly Expenses | |
| Mortgage (including property tax) or rent | 30000 |
| Car payments and insurance | 6000 |
| Utilities | 5000 |
| Food and clothing | 20000 |
| Child cares expenses | 10000 |
| Bank loan and credit card payments | 30000 |
| Medical expenses | 20000 |
| Health insurance premiums | 10000 |
| Insurance premiums (life, disability, dental, etc.) | 10000 |
| Savings, investment and retirement contributions | 20000 |
| Home maintenance costs | 10000 |
| Other (education, entertainment, etc.) | 10000 |
| Total Monthly Income Available | 40,000 |
| Total Monthly Expenses | 181,000 |
| Need for Additional Monthly Income due to Disability | 141,000 |
So do you think your Disability/Life Insurance will provide you a sum of 181,000 to meet your monthly expenses?
In case, your family member is caught up with major illness
In case you or your family member is caught up with a major illness, you need to look for immediate cash. Health insurance could help you with these.
Calculate Your Needs
Kapil age 35, and his wife age 34 have a single kid, and two dependants live in Hyderabad. Let’s take a look at how much health cover he needs –
Total Insurance needed: 18.9 lakh
Insurance cover needed to protect your family fully 18.9 lakh.
Hence, we have just seen different scenarios where an individual would need a high sum and hence multiple insurance policies could serve the purpose.
With multiple policies handling a person may have to devote time to managing the payments and renewals may consume time but on the other hand they offer key benefits like –
- To diversify across insurers
- To have plans with different maturities to adjust cover according to changing liabilities
- To break down a large cover into smaller ones
We hope we have answered your queries on whether buying multiple insurance policies serve the purpose or not. If you still have any unanswered questions or need help, feel free to contact us here.
We would be glad to help you with your planning and investment related decisions.
Samiksha Seth
Content Strategist – Dilzer Consultants Pvt Ltd.
Sources
13 May 2016