This post is a response to one of the readers who has recently posted a comment on this post. Therefore I do hope that, with this post, I can help to bring out some pointers on the cons of having the many of the same insurance policy types…
When Are There Cons To Having Too Many Of The Same Policy Types?
The existence of cons depends on the terms and conditions stated by various insurance companies. So it is always better to check with the Financial Planners representing each of them. Things worth checking out:
#1 The Maximum Amount Of Insurance Coverage
Some insurance companies tie the maximum amount of insurance coverage against Death and/or Critical Illnesses against a factor of one’s annual income. For example, some insurance companies may set 16 – 20 times of annual income as the maximum sum assured for a whole life or term insurance. So if you are earning $100,000 per year, the maximum amount of insurance coverage that you can get may be set as $2,000,000. Any amount beyond that may mean that you are over-insured and insurance companies may just pay up to that limit.
If you are thinking that it’s unfair since you have the means to pay the premiums, but do think of people who may take advantage, e.g. a person deeply in debt and unemployed but has some savings to tide him over… he decides to get a $1 million dollars term insurance to cover himself and he decides to commit suicide after a year (of which the premium paid is just a few thousands). This will be unfair to the Insurance Company and to the pool of policyholders, do you agree?
Which is why, during some insurance applications for whole life or term insurance with high coverage, the company would ask for the annual income and on top of that, to show proof of income statements, in order to be eligible for that coverage.
Therefore it will be a con to have many of the same term/whole life insurance plans which exceed the maximum insurance coverage. If you think you are in such situation, you can always ask for a review of your insurance plans and clarify with your Financial Planner whether you are in the risk of being over-insured…
#2 What You Need To Take Note Of Reimbursement Plans
Reimbursement Plans are like those Personal Accident Plans and Health Insurance Plans that have benefits that cover you against incurred medical costs. The nature of such plans will usually cover to the maximum medical costs incurred and will not pay more beyond that.
For example, you have two Personal Accident Plans from different insurance companies that pays up to $1000 for Medical Costs each. And if you have a medical bill that’s less than $1000, you are only eligible to claim from one of them and not both. If your bills are always below this amount, that will be a small con of having two such plans because you can only claim from one each time but you have to pay premiums for both plans.
This is also the case for Health Insurance Plans. It will definitely be a big con if you have two or more such Health Insurance Plans that cover 100% of your medical bills respectively.
#3 Is There Such A Thing As Too Many Savings/Investment Plans?
What you need to take note is that there are sales or administrative charges involved when you take up a new savings/investment plans… For example, you may be better off to take up a single endowment plan of $500 per month versus two endowment plans of $250 per month each on the first instance. Likewise… it’s better off to take up one investment plans versus two especially if the fund types chosen are the same.
If any Financial Planner asks you to do so, it’s advisable to justify the rationale behind it and have the charges worked out clearly to see which option is worth it!
In Doubt? Clarify With Your Financial Planner!
What is being shared here can be a small part of many other cons for having many of the same policy types… Eventually it will depend on the terms and conditions stated down by the policy contract and by the insurance companies. If you think you are in such situation, it is always good to clarify with your Financial Planner and have your current plans reviewed and explained.
Still in doubt? You can always seek the opinions from other Financial Planners representing other insurance companies!