In all of our collective investment knowledge, we all know one thing for certain. It is not wise to put all the eggs in one basket. This means you need to diversify your investments and not be limited to just one asset class. But should you apply the same strategy to your term insurance coverage? This means should you put money into different policies from different companies?
Many customers choose to buy the simplest online term plans from two or more insurance companies at the same time. For example, today if they want to cover themselves for ₹ 1 cr., they choose to buy two different policies for ₹ 50 lakh each from two different insurance companies at once. However, what can be the reason behind this unique approach? If you observe and collect information from such individuals, you will find that buying multiple policies is a measure against the possibility of claim rejection. So, if they buy multiple policies and one company rejects them, they assume that another one might accept the claim. However, does anyone know this measure to be effective? Read on to understand.
Understanding claim rejection
It is smart to consider the risk of term insurance claim rejection as a criterion before making a purchase. But it is better to understand why your claim might get rejected. Doing so will help you minimize the chances of your claim being rejected. The main reason for rejection of claims in term insurance is non-disclosure of facts and/or misleading information. This non-disclosure can be related to income, occupation, medical history, etc. In addition, many insurance companies also ask for details of past insurance claims that may have been rejected, delayed, or accepted under special conditions among other things. If any of the information provided by you turns out to be inaccurate, your claim may be rejected.
On the other hand, if you have disclosed all the information correctly, there is no other reason big enough for your insurance provider to deny your insurance claim. In such a situation, if you buy term insurance policies from tow insurers and report exactly the same facts to both, neither would have any grounds to reject your claim on the basis of non-disclosure. Hence, by purchasing two insurance policies, you end up having to pay more premium and manage two policies at the same time.
Advantages of buying a single policy
It is not dangerous to insure yourself with a single insurance company if you have properly disclosed all the details in the proposal form. In fact, Not buying multiple policies and buying covers with a single insurance policy has a tone of advantages. These include:
- Cheaper premium
Most insurance companies offer large amounts of discounts for insurance buyers if they go for a larger sum assured. Therefore, the price for a large amount of sum insured will be cheaper than the total money you spend on two or more term policies. For example, purchasing two policies with ₹ 50 lakh will be more expensive than buying a single policy with a ₹ 1 crore sum assured.
- Easy claims
The nominee will not have to run around for completing formalities with two different insurance providers for the term insurance claim process. This means they wouldn’t have to submit documents, fill forms etc. more than once.
- No risk of mismatching details
When buying two policies, you might forget to specify certain specific details to the insurance company when applying for the policy. However, at the time of making a claim, this mismatch in information can lead to a rejection of claim. Hence, it is better to avoid the possibility of letting a mistake turn into a mishap. If you buy a single policy and have given all the accurate information, there is no risk of mismatching details.
Usually, diversification can be very helpful in reducing risk and providing better returns. But in the case of term insurance, it can mean more trouble. Instead, you can minimize the risks by making proper and accurate disclosures for the single policy that you buy. This way, you will not have to split your term life insurance coverage between multiple insurance companies.