Term insurance is the purest form of life insurance that provides financial protection in case of the insured person’s demise. It only provides life-risk cover, and therefore, offers high sums assured for nominal premiums. Because of these term insurance benefits, splitting term plans can be used to serve different purposes.
Splitting of term insurance means taking or holding more than one term insurance policy at a time. The strategy is to cover the life of the insured person and a multitude of other things. Therefore, splitting becomes affordable and beneficial to the ones insured.
Why Should Splitting Be Done?
Splitting of term insurance can be done for the following purposes:
Usually, people take term insurance to secure their family which is around when they are 25 years of age. This is the starting phase of the cover. Therefore, considering their current income level, they allocate a part of the income for premiums that is usually low. Therefore, their sum assured decreases. As they advance in their career, their income starts increasing and therefore, their needs and requirements also increase. It is at this time that splitting of term insurance policies can be done to increase the cover of the policy as per their current income level.
Moreover, most term insurance policies usually cover a term of 30 years. Therefore, a term plan taken at the age of 25 will provide the cover until the age of 55. However, it is usually recommended to have a policy cover at least till the age of 65 years. Therefore, a new policy taken at the age of 35 for a term of 30 years will provide cover up to the age of 65 years.
Term plans can be used to serve specific needs other than life cover. Suppose you have taken a home loan for 16 years of Rs. 40,00,000. In case something happens to you, the bank will seize your assets to recover their dues, leaving your family to face the brunt of fate. Receipts from your normal term plan will go towards the repayment of the loan, and your family may end up with only half or a quarter of the receipts left for them. Here, you can take a new term plan having an amount and term equal to the loan amount and tenure. In this case, if anything happens to you, your split term insurance can be used for the repayment of the loan, and your original term insurance can be used by your family to support their livelihood.
Different companies have different terms and conditions for term plans. Some of them are more favourable to the policyholders. Therefore, by splitting your term insurance, you can prefer a company different from the existing company with which you have taken your original term insurance. However, intimating the second company about your existing term insurance is a good practice because, at the time of claims, it won’t be a hurdle in processing your claims by different companies.
Your near and dear ones may include your parents, spouse, siblings and children. You care for them all and want to protect them in case anything happens to you. However, in term insurance, the claim amount goes to a single person who is your nominee. Therefore, to make things work out and ensure that everyone is secured, you can split your term plans and keep different nominees for different policies, thus ensuring protection to all.
Above were various reasons to split your term plans and how they may prove beneficial. Normally, the premium rates of term insurance are lower; however, multiple term insurance policies may increase your premium burden. You can use a term insurance calculator to know the amount of premium that you will pay for multiple policies. Therefore, splitting should be done in a phased manner such that the amount of premium aligns with your level of income and does not increase your financial burden. Term insurance benefits are huge when used strategically and wisely.