Ask Mint Money | It’s not a good idea to split life insurance with multiple insurers

Published in Mint on, Aug 01 2012, Written by Kapil Mehta

I am 32 years old and unmarried. However, my 63-year-old mother is dependant on me. I want to take a life cover so that if something happens to me, at least she is monetarily safe. Currenlty, what are the options available?
—Neel

Purchase a term insurance policy and name your mother as the nominee. If you purchase Rs 1 crore of insurance for 30 years that will cost you less than Rs 17,000 per year. If you were to die during the policy term, your mother will be paid Rs 1 crore tax-free. Make sure that a responsible person is aware that you have an insurance policy and initiates the claim process, if needed.

I am 27 years old and married. My wife and I plan to buy a term insurance nominating each other. Can we go for a joint policy? Can the nomination be changed to children in future?
—Ekam K.

I do not recommend buying a joint life policy because the few companies that offer it are not the most cost-effective. In a joint policy, both of you will still need to undergo complete underwriting and there is little savings in administrative procedures. Instead purchase independent term plans and mark each other as nominee. In the future, you can change the nomination to your children. Just call up the insurer’s call centre and request a change.

Can my company pay for my term insurance if my wife is the nominee (rather than the company)?
—Himansh

Yes. This is called an employer-employee term insurance. Your company can pay the premium and charge that as a business expense. If a claim is due, your wife will receive the sum assured, tax-free. To be eligible for an employer-employee insurance, your shareholding in the company must be less than 49% and you should receive a salary from the company.

I want to purchase a term insurance for Rs 4 crore. Should I buy four policies of Rs 1 crore each from different insurers?
—A. Mandal

I would not advise splitting your policies with multiple insurers. Your underlying concern is that an insurer may not pay a genuine claim. If you have completed the proposal form honestly, then the possibility of claim repudiation is remote. You should make sure that you purchase the insurance through an adviser whom you trust. If you die, this person should follow through with the insurer for payment. Keep in mind that if you purchase insurance from four different insurers, you will need to undergo four separate medical tests and complete documentation separately with each insurer. In case of a claim, your nominee will need to follow up with the insurers separately for payment. Also, you will miss out on the sum assured discounts provided by insurers.

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