You want life insurance coverage to ensure your children have money for college, your mortgage will be paid, and to provide income replacement to your spouse in case you die prematurely.  Instead of purchasing a single $1,000,000+ dollar life insurance policy, you can layer multiple policies to save money and avoid being possibly over-insured.

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 and your spouse both work well-paying, steady jobs, have a generous savings and retirement portfolio, and are parents to two young children under the age of 5.  You still owe $350,000 on your 20-year mortgage.  You know that if one of you died prematurely the other could afford a nice funeral and pay off any final expenses.  You mainly just want to ensure your children get a good education and that your family can continue living in the home if you were to die prematurely.

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 are a husband, father, and business owner.  You plan on retiring in 20 years, you have 15 years left on your mortgage loan, and your children are ages 10 and 15.

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.