Why Should You Have More Than One Life Insurance Policy?

Everyone in today’s world looks for convenience and an easy way out to complex matters such as tax deduction claim through life insurance plans. Abhishek Raizada, 38, was no exception. As a sales and marketing director in a multinational company, he was earning a handsome salary of over 25,000,00 LPA.

To save on tax, he bought a life insurance policy with a premium liability of Rs 1,00,000 and ever since he got hold of it, he paid the premium every year religiously. A year ago, the government raised the tax exemption limit for life insurance premium payment to Rs 1,50,000. So now he bought another life insurance policy of Rs 50,000.

Do You Think Abhishek Followed The Right Approach?

More often high-flying professionals are busy with their work and that leaves them with no time to think dedicatedly about their investments. Thanks to the exemption under Section 80C of the Income Tax Act that every corporate employee is asked to declare his/her investment in life insurance products. And everyone does take it quite seriously. After all, one can save a sizeable tax in the range of 10-30 per cent on his/her taxable income.

But there is more to it. If you act wisely, you can generate much more from your investment in life insurance plans. Traditionally, life insurance policies are known for their low but secured returns. This is due to the long-standing monopoly of public sector life insurance companies which promoted life insurance plans more as a risk coverage tool than return generating investment instruments.

Most people carry this mindset even today – that expecting returns from a life insurance policy is not right and one should just focus on the kind of security it provides to family and things like that. The primary objective of a life insurance plan indeed is to cover the risk of loss of life. At the same time, it is far from any rationale to not expect returns your investments deserve.

Professionals in the age group of 20 to 45 years should aim for superior returns and not restrict themselves to traditional low yield insurance plans. This is the age when you can generate more income and thus save more. If you invest your savings wisely, you can achieve financial freedom and secure a good life for yourself and your family.

If you are willing to invest Rs 1,50,000 lakh in life insurance every year, then you should go for a combination of various life insurance policies. You can consider 2 to 5 life insurance policies.

Advantages To Keep More Than One Life Insurance Policy?

Certainly, multiple policies have benefits and there are many. You must have heard how companies follow the diversification strategy to spread their business risks and generate better returns. Many of you must be recommending and working on such plans in your organizations. So, isn’t it a good idea to work on the same principle for your benefit?

Of course, this helps in spreading risks of low returns from low performing companies. You can buy multiple policies from multiple companies. Thus, if one life insurance company is unable to generate good returns, the other might get you something better.

Also, never stick to just one type of life insurance plan. Develop a portfolio with the Unit Linked Insurance Plans (ULIPs) and Equity Linked Savings Scheme (ELSS). In the mid to long term horizon of 3 to 10 years, these plans can bring you much better returns than conventional endowment life insurance plans.

If you research on these plans, the top-performing ULIPs and ELSS plans have pumped returns of over 20 per cent a year than 5-8 per cent of conventional plans. Further, when we compound the returns over some time, the implications are much larger and deeper.