Should you have two term life insurance plans?

In our country, when it comes to risk protection with life insurance many are unaware of term insurance and its benefits. People usually look at insurance as an investment product and expects it to pay back in lumpsum on maturity. However, it is always better to keep investments and insurance polls apart as the objective of both these financial instruments are different. The objective of having insurance is to protect your finances from any uncertainties. On the other hand, investment is something which aids you in creating wealth to achieve your financial objectives. So, if the purpose of both the products are different then why combine them?

But the question is that if you wish to take term insurance, then should you take two term insurances? In practical terms, it is beneficial to have single term insurance rather than having one for your financial needs and loans if any and one for your dependents daily needs. Let us use an example to understand it better. Say, for instance, you have your child’s education goal for which you would require Rs. 20 lakh in 10 years and for your child’s marriage you need Rs. 10 lakh in 12 years and your current outstanding loan is Rs. 30 lakh with a remaining term of 12 years. So, you can have one policy of Rs. 60 lakh. Assume your dependents would require Rs. 1 crore until your spouse’s life expectancy to survive. Then you can take the second policy of Rs. 1 crore.

Now your question must be why to do this way and why not take one single policy of Rs. 1.6 crore. The first reason being you won’t require Rs. 60 lakh in the next 12 years. So, if you survive till that period then you don’t need to cover Rs. 60 lakh and you won’t be liable to pay the premium for the same which won’t be the case with a single policy. Let us continue with our above example and go deep to understand the benefits of having two policies. Let us say your age is 30 years and you are a non-smoker and policy term would be 30 years. If you take a single policy of Rs. 1.6 crore then you need to pay a premium of Rs. 29,642 yearly or effectively Rs. 2,470 per month.

Now let’s say you take two policies, one policy of Rs. 60 lakhs would be for 12 years term as at max you would need this is up to 12 years. So, you would be paying Rs. 5,947 yearly or effectively Rs. 496 per month. Now let’s move to other policy of Rs. 1 crore and term for that would be 30 years, i.e. until your retirement. The premium you would be paying for the same is Rs. 18,526 yearly or effectively Rs. 1,544 per month. So, if you add both, then you would be paying a premium of Rs. 20,905 yearly until 12 years and post that Rs. 18,526 yearly for the next 18 years as against Rs. 29,642 yearly for 30 years in single term insurance. So, you are effectively saving Rs. 8,737 yearly or Rs. 728 monthly.

Now say if you do SIP of Rs. 728 per month for the next 30 years at the rate of 12 per cent then post 30 years your accumulated corpus would be Rs. 25.7 lakhs. So, with the above analysis, we can say that it is not that beneficial to have two term policies. It would be only beneficial if you only survive for 12 years (as per our example above) post that you would be only covered for Rs. 1 crore plus the accumulated amount of Rs. 25.7 lakhs from the savings, totaling Rs. 1.26 crore, while in case of single policy you would be covered for Rs. 1.6 crore.

It is to be noted that the premium calculated is for the Life Insurance Corporation of India’s e-term plan with an age of 30 years for a non-tobacco consumer. Even the premiums are indicative and are subject to change depending upon the insurance company.