Life insurance companies do not have any restrictions when it comes to purchasing multiple policies, as long as the amount of coverage can be justified. For example, a single, childless person making $50,000 a year cannot just go buy multiple million dollar insurance policies on him or herself for two reasons:
- The insurance company would be cautious as to why someone with no spouse or children would want to insure themselves with that much coverage.
- They would be wary of the person’s ability to consistently afford the premiums.
There are a lot of costs that go into insuring someone including administrative costs, medical exam and testing costs, and potentially paying out a large death benefit, so life insurance companies weigh all the risks for those that apply for coverage.
That being said, if you have the justification and insurable interest for owning multiple life insurance policies, then doing so can be very beneficial. Let’s go over a few scenarios in which owning multiple policies may be a good idea.
Policy 1 – $500,000 10-year term policy to cover your children until they reach adulthood
Policy 2 – $300,000 20-year term policy to cover your mortgage
Policy 3 – $250,000 30-year term policy to replace your income for your spouse until he/she reaches retirement
By layering these policies, for the first 10 years you will have over one million dollars in coverage. Then the amount of coverage (and what you pay in policy premiums) will decrease as your insurance needs decrease.
Because your age and health have a heavy role in determining policy premium costs, buying the policies all at once instead of waiting for when the needs arise can save you money. The longer you wait, the older you get and the chances of health issues appearing increase.
You could purchase a $400,000 20-year term policy to ensure your mortgage would be taken care of and a second $150,000 30-year term policy to ensure both of your children are taken care of and can go to college if you died prematurely. Once your mortgage is paid off, you could let the $400,000 policy expire leaving you with 10 years left of coverage on an additional policy, just in case.
Owning two separate policies instead of one $550,000 policy provides flexibility.
You could purchase a permanent life policy that would provide for basic life insurance needs to last your lifetime to ensure your wife would have money in her retirement years to replace social security benefits, cover estate taxes, funeral costs, and any other final expenses.
You could add a 20-year term life policy that is structured to fund a buy-sell agreement to protect your business. This would ensure that if you died prematurely the remaining business owners would have the funds to buy your share at a previously agreed upon price; this arrangement allows the surviving owners to keep the business while your family still gets a payout. This business policy would be owned by the business or the other owners of the business.
You could also add an additional 15-year term policy to cover the remainder of your mortgage and both of your children’s education.
Now, why would you purchase three different policies here instead of just one? With multiple policies in place, once your children are grown and you’re retired, you can let the term policies expire. Rest easy knowing you’re still on this side of the grass and that you have a permanent life policy locked in place to cover final expenses. Owning additional term policies instead of a large permanent life policy for all those years would align better with your needs, be more affordable, and allow for different ownerships.
Owning Multiple Life Insurance Policies
In many cases you can save money by owning multiple life insurance policies, but it’s important to note that each policy has a fixed policy charge. By owning more than one you would be paying more than one annual policy charge (a nominal $50 fee or similar.) Also, each of your policies would be subjected to the insurance costs associated with policies within that band of coverage. The larger the policy the lower the costs are per thousand of coverage as they cross those bands.
Another note of interest is that you can have multiple policies from different insurance carriers. Let’s say you purchased a $150,000 20-year term policy from Insurance Company A before you had children. You now have a baby on the way and want more coverage, but discovered Insurance Company B has better rates. You are free to apply to the second company and still keep your first policy.
Life insurance is very flexible and can be structured in a way that fits your individual needs. Get a life insurance quote today. If you are unsure of what your coverage needs are or whether multiple policies would be in your best interest, feel free to contact Quotacy. We have years of experience in getting families and their loved ones financial protection. Whether it’s through one or multiple insurance policies.
Photo credit to: www.RachelMFry.com