The answer is, perhaps! There certainly are circumstances under which you might consider purchasing multiple life insurance policies.
First, Why Does Someone Need Life Insurance?
Here are the primary reasons someone takes out a life insurance policy:
- If you are the family’s breadwinner, it provides your family with income if you pass away.
- It provides financial security, which protects your family if you pass away.
- It can provide for full payment of any debt like a mortgage or car loan.
- You can name your business partner as a beneficiary. This allows your business to continue operations uninterrupted if you pass away.
- It can provide payment of any anticipated inheritance tax levied against your estate.
Different Life Insurance Policies Are Appropriate for Different Life Stages
A young single professional probably does not need life insurance. But when that person marries and has children, he or she needs life insurance to protect their family from destitution. At that stage, he or she might purchase life insurance in an amount and with a term appropriate to potential lost income. And, for how long the children will need to be provided for.
Once the children grow up and move out on their own, a parent still might want life insurance to protect the spouse. Life insurance can also provide for payment of funeral expenses when the time comes.
A parent might at any time hold any or all of these life insurance policies concurrently, where the policies differ in the coverage term and the coverage amount. Keep in mind that, for the most part, life insurance is less expensive the younger you are.
Purchasing a policy that has many exclusions when you are young, along with a more expensive and expansive policy, with those two policies differing in years of coverage, might be advisable as the cost is better distributed over time.
Disclose Multiple Life Insurance Policies to Each of Your Insurers
This is important because if you do not, your policies will likely not pay out the way you intended them. Tell each of the insurance companies you purchased policies from another company.
This can likely be done in a section on your application that specifically asks about additional policies. However, if an application does not have a section for this, you can call that insurer to ask how they handle disclosure of additional policies.
Why must other life insurance policies be disclosed? Because one policy affects the payout of any other policy pursuant to the limits on policy value based on age, income, and the beneficiaries’ other sources of income.
If you do not disclose that you have additional policies, your beneficiaries’ claims could be denied. It would be due to a material misrepresentation on your application or some other related reason. There is no reason to risk that, especially when you are so concerned about planning for your family’s future financial security.
Having Multiple Policies Also Spreads the Risk of Claims Being Denied
One insurance company denies claims for reasons another would not. This is why having policies with different insurance companies lowers the risk of anyone’s claim being denied. And, it makes it more likely your beneficiaries will get paid.
How Do I Apply for More Than One Life Insurance Policy?
To streamline the process of purchasing multiple life insurance policies, you can hire an agency that represents several different companies. That agency will ask you to submit one medical exam and packet of records, which they will use for each application.
If you decide to use an independent life insurance agent, please be sure to research the policies you are considering. This is in order to ensure that the information is accurate. You also need to research whether there are any additional riders you can take advantage of.
If I Get Divorced, What Happens to My Life Insurance Policies?
Divorce automatically removes an ex-spouse as a beneficiary by operation of law in some states. Most states do not do this, so check with your insurance agent to find out what must be done to change beneficiaries after your divorce.
If you pay child support and/or alimony, you will likely be required to maintain at least one life insurance policy. This is for the benefit of those receiving that support. Be sure to make your monthly payment on that policy. Failure to do so could be a contempt of court and cause you additional money and headaches.
This is a guest post from Veronica Baxter. She is a freelance writer and legal assistant operating out the greater Philadelphia area. She works frequently with Chad Boonswang, Esq., a Philadelphia life insurance attorney.