Multiple Life Insurance Policies.
Yes, individuals can own several different life insurance policies on themselves. In fact, it’s quite common. What isn’t quite as common though, is understanding why some folks will choose to take out several life insurance policies on themselves and what insurance “kinds” of rules and regulations an insurance company may place on someone thinking about applying for additional insurance coverage.
This is why…
We wanted to take a moment and discuss some of the most common questions we get from folks who are thinking about taking out additional policies on themselves as well discuss when it might be a good idea to do so.
Questions that will be addressed in this article will include:
- Why would someone need to take out multiple life insurance policies on themselves?
- What are some of the benefits of owning several different life insurance policies vs. just one larger life insurance policy?
- What restrictions (if any) do life insurance companies place on someone looking to purchase multiple life insurance policies on themselves?
- What can I do to best ensure I find the “best” life insurance policy for me?
So, without further ado, let’s dive right in!
Why would someone need to take out multiple life insurance policies on themselves?
Just as there are many reasons why an individual would want to purchase a life insurance policy, there is an equal number of reasons why an individual would want to have multiple policies in effect. For example, while it is clear why someone might want to have a life insurance policy on themselves to protect a spouse, child or ensure a mortgage, some folks may also want or need a life insurance policy to:
- Insure a business loan,
- Insure a buy/sell agreement with a business partner,
- Satisfy a divorce decree,
Or they may be looking to “ladder” their insurance coverage to meet their needs better as they age (which is something we’ll discuss later on).
What are some of the benefits of owning several different life insurance policies vs. just one larger life insurance policy?
One of the main advantages of having multiple life insurance policies is that not all of your insurance needs will be tied up within one main policy. This means that if you find yourself suddenly not need as much coverage as you thought you did, you may be able to drop one or two different life insurance policies, without affecting the status of the remaining policies.
If someone needs to purchase a life insurance policy to ensure a loan, once that loan is repaid, the need for this insurance policy will disappear. At that point, the insured/borrower would then be able to decide what they would like to do with the policy. Do they want to keep it and just change the beneficiary?
Or do they simply want to stop paying the insurance and get rid of the policy all together?
This is an option…
Someone would have if they owned several different life insurance policies and didn’t tie up all of their insurance needs into one larger life insurance policy.
Of owning multiple life insurance policies on oneself is closely tied to a major argument concerning Term Life Insurance vs. Whole Life Insurance. In this argument, what you will find is that a lot of financial advisors and Radio/TV personalities will often claim that purchasing a more expensive whole life insurance policy that will last your whole life is not worth it.
It’s not worth it…
Because as one ages, his or her insurance needs will likely decline (we generally agree accept in certain situations: Top 6 Reasons to Buy Whole Life Insurance article).
If we can agree that most people will see a decrease in their insurance needs as they age and that in most situations, a term life insurance policy would be the better life insurance policy to purchase. Might it not also be safe to assume that purchasing several different term life insurance policies that would end at different times might ultimately be the best way to go?
Let’s look a someone in their late 30’s, they have two small children ages 4 and 6, and just bought a home with a 30-year mortgage. Right now, their insurance needs are HUGE, which is why they want to buy a $500,000 30 year term life insurance policy for their loved ones.
“Makes sense, right?”
But what if…
They died tomorrow? Would $500,000 dollar be enough? Or would it be better to have more coverage for the next 15 years or so while their kids are young and haven’t gone off to college yet?
Then have their coverage drop off after 15 years or so? It might be better to do it that way.
This is where…
Having a true life insurance profession walk you through your options may make all the difference in the world with regards to what kind of policies you may purchase.
May find that you may be able to purchase significantly more coverage for a shorter period of time for just about the same amount of money, which could actually protect your family much better!
While a $500,000 dollar life insurance policy for your family for the next 30 years might be helpful, it’s quite possible that a Million Dollar life insurance policy for the next 15 years and a $250,000 life insurance policy for 30 years is actually what you really need.
For the next 15 years, your family would have 1.25 million dollars in coverage, then once your kids are grown, and out of college, 1 million dollars in coverage would drop off, leaving your spouse with $250,000 dollars in coverage and ½ your existing mortgage paid!
Is this the better way to go?
Only you’ll be able to answer that question for sure, but until you “run” the numbers and see what it might cost to purchase two different term life insurance policies vs. one, you really won’t know, but what we can tell you is this is one of the MAIN reasons why a lot of folks have multiple different life insurance policies on themselves.
In fact, it’s such a popular strategy it even has a name. It’s called laddering.
What restrictions (if any) do life insurance companies place on someone looking to purchase multiple life insurance policies on themselves?
Now that we understand that individuals can take out several different life insurance policies on themselves, it’s important for us to also point out that just because one can “theoretically” take out several different life insurance policies on themselves doesn’t mean that they’ll be able to qualify for all of those policies.
If you already have a life insurance policy in place on yourself, you will still need to qualify for your new life insurance policy as well. And by qualifying, we mean that you will need to meet the minimum requirements set by the “type” of life insurance policy that you are thinking about purchasing.
This means that…
You will need to complete another life insurance application, possibly take a new medical exam (unless applying for a no medical exam life insurance policy) and be able to demonstrate that you are not seeking too much life insurance on yourself. So if you’ve been diagnose with any pre-existing medical conditions since the last time you applied for a life insurance policy, these may become an issue with your ability to qualify for a new life insurance policy.
Most insurance companies are now going to take a closer look at how much “total insurance” you will have on yourself should they decide to APPROVE your new life insurance application. You see, most (if not all) life insurance companies will use certain financial formulations and/or calculations when determining how much life insurance an individual can qualify for.
The purpose for this…
Is so that an insurance company doesn’t find it’s self-insuring an applicant for more money than he or she is worth. This is important because, at the end of the day, a life insurance policy isn’t supposed to make someone “rich.” Instead, it’s purpose is to make one “financially whole” in the event that you pass away prematurely.
When you purchase your additional life insurance policies, most life insurance companies are going to want to know all about what “other” life insurance policies you have inforce and why it is that you’re choosing to add additional coverage to your portfolio.
They’ll also want to make sure that your beneficiary has an “insurable interest” in your well being and that you aren’t purchasing more insurance than you would “technically” be able to qualify for.
This brings us to the last topic for discussion, which is…
What can I do to best insure I find the “best” life insurance policy for me?
In our experience here at IBUSA, what we have found that works best for folks who are looking to purchase an additional life insurance policy on themselves is first to find a true-life insurance professional who will work as an advocate for you.
Such an agent…
Will not only help guide you through the application process but also be perfectly “frank” with you about what options may or may not be possible for you.
You’ll also want to make sure that the very same agent you have chosen has access to dozens of different life insurance companies because after all, it really doesn’t matter how “great” of a life insurance agent you might have if they don’t have access to the “best” life insurance policy for you! Now, does it?
You’ll want to make sure that you’re completely honest with your life insurance agent before applying for coverage. By doing so, you will be helping him or her narrow down what options might be the “best”.
From there, it’s just up to you to ask any and every question that you may have so that if and when you do decide to apply for coverage, you’ll know for sure that you’re doing so for the right reason with the right company!