spliting the term insurance between two companies

POSTED BY Vipin Kumar ON March 24, 2012 8:16 pm COMMENTS (14)

Hi
I am looking for online term insurance of 60 Lakhs. Should I split the insurance between two companies (say 40 lakhs & 20 lakhs)? But in this scenrio premiums will be higher than taking the insurance from one company. Premium benefit of higher sum assured (> 50 lakhs) will not be available to me. Please suggest.
Somebody have idea, when LIC going to launch online term insurance?
Thanks

14 replies on this article “spliting the term insurance between two companies”

  1. Abhinav Gulechha says:

    Hi Sachin

    Sorry but you have misunderstood the context in which I spoke about mutual funds. I was not advocating about combining insurance with investments.

    Abhinav

  2. Abhinav Gulechha says:

    Hi Ashal

    Thanks for your reply. The intention of splitting is to spread the risk of non-performance of promise by insurance company. In mutual fund, it can be non-performance of scheme, likewise in insurance, it can be non-payment of claim. Now in case I have Rs. 10000 that I have which I want to invest in large cap diversified equity fund, why do I split it between Fidelity Equity and HDFC Growth: to ensure that in case Fidelity doesn’t perform, at least normal performance by HDFC Growth can result in my combined returns not being too divergent from my original expectation. Now, when we say that no, both schemes can fail at the same time and diversification should be avoided, I would request to disagree with that thought.

    Similar to insurance. As regards your point regarding insurance, if I do not diversify assuming that what happens in case both companies do not pay the claim, with all due respects, in my view, thats not very sound logic. Not as a financial planner, but as an individual, I need that security that if one company rejects the claim, at least my family can rest assured of getting claim from another company. Also one more point. Given that person has completely disclosed his details in the proposal, the probability of 2 companies rejecting the claim together is far far less than a single company rejecting the claim.
    Having said that, diversification will not be useful if there is a mala fide intention at the end of either the policyholder or the insurance company at the time of entering into a contract.

    Also I strongly disagree to the idea that splitting depends on a person’s psychology. I think it is a more of a common-sensical approach wherein we have rampant misspelling, outdated regulations, a slack grievance redressal mechanism and a hopelessly ineffective judicial process.

    Kindly let me know your thoughts.

  3. Yogesh K says:

    Please refer to link http://localhost/jagoforum2/is-it-beneficial-to-have-endowment-policy-pure-term-policy/2794/
    I have opinion that one should also have some kind of endowment policy. In case of claim, one should claim for endowment policy and the chances of settling that are high. Once that claim is approved then claim for pure term plan insurance.
    I am not aware within how many days one should claim for any insurance. Can anyone please share this info.

    1. Dear Yogesh K, the normal time frame to file a claim is 30 days from the death day. If there is any valid reason of delay, Ins. co. may accept claim after this 30 day dead line also.

      Thanks

      Ashal

  4. Abhinav Gulechha says:

    Hi

    Thanks for your query. On your query on splitting of insurance, in my view, there is a strong case to diversify your risk exposure in multiple avenues. In my personal case, I have split my term insurance of Rs. 1 crore into 2 companies.

    However, one of the learned experts of the forum had contested my similar stand in respect of an earlier query that it has already been thoroughly debated and concluded by the forum that it increases unnecessary paperwork at claims stage. To him, I will have a small question….what happens in spite of complete due diligence and disclosures, and reliance on the good claims settlement record of the company, the insurer denies the insurance claim for some frivolous reason: while the way is open to approach the grievance authorities and consumer forum, at least the claim amount received from other insurance company (in case you have taken policies from different companies) can ensure that the family members of the deceased can tide through the difficult times. Also, when we split our mutual fund investment exposure to schemes of two or more fund houses for logic of diversification, why should it not be applied to insurance?

    In my view, a small bit of more paper work at claims stage is acceptable, than landing up in huge financial trouble just on this ground.

    Invite your views.

    1. Dear Abhinav, what ‘ll happen in this case of diversification, if the family files a claim with 2 different insurers, one quickly process the claim but denies it & on the basis of the sane, 2ns insurer also denies the claim? In this situation fighting ‘ll increase 2 times, is it not a possible scenario?

      Thanks

      Ashal

    2. Sachin says:

      Abhinav,

      “when we split our mutual fund investment exposure to schemes of two or more fund houses for logic of diversification, why should it not be applied to insurance?”

      INVESTMENTS AND INSURANCE SHOULD NOT BE COMBINED FOR ANY REASONS WHATSOEVER.

  5. BanyanFA says:

    Hi,
    I saw a face book post from Manish who mentioned that getting a term insurance from a single provider over Rs. 50 lacs can be cheaper than seperate insurances of less than 50 lacs.

    Regards
    BFA

  6. TheZionView says:

    @vipin split or no split

    get the term plan first,,you are running the risk everyday you don’t have it. You can always decide and change it afterwards ,,you might just have to pay a bit more.

    Take a full year to analyse all the possible solutions but get any one term plan now which covers you right away .

  7. Dear Vipin, first of all I want to know, how did you reach for the sum assured of 60L Rs. Is it due to any calculation or just a rough estimate? Please elaborate.

    Thanks

    Ashal

    1. Vipin Kumar says:

      Just because I wanted sum assured > 50Lakhs to have better premium vs sum assured ratio. Thats why i decided SA of 60Lakhs.

      Thanks

  8. Sachin says:

    First jot down your actual requirement for term insurance. Then think what is intention about splitting the insurance in 2 instead of keeping in one.
    I disagree that taking two term insurance instead of one gives more redundancy.
    It has its own side effects also.
    LIC may reject claim stating that private company rejected it as per private companies investigation on rejection. But if you have term plan only from LIC then they MAY pass it with less scrutiny (who knows ???).

    So anyways it has both pros and cons of taking term plan from one or two company. I will prefer to fight with one company instead of two (Ofcourse i wont be alive for that !!!).

    If you give all correct information then you have strong case and we also have law structure to support that. TRUTH can NOT be defeated, it can only be delayed.

  9. LIC online term plan is in news since many days. Even the guys working in LIC just say it is on cards but are not able to tell exact date.

    Splitting insurance and going with two providers may work out little expensive but it is worth it. I am biased towards LIC and would go with LIC and other with private insurance.

    25 Lakh with LIC and rest with Private insurance. LIC premiums are higher.

    If you want to wait for LIC online plan, then you can go for private insurance for 35 or 40 lakh term plan

  10. cpdhutadmal@yahoo.com says:

    Hi,

    It is always better to diversify the risk. You never know who will come to your rescue at the time when it is required. Personally, i think you can wait for few more days as LIC is going to launch its new Term Plan. Then take one from LIC and other from private company.

    Regards

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