Owning Multiple Life Insurance Policies

Over the years, I’ve been asked many times about whether owning multiple life insurance policies is a good idea or not. If we assume for this discussion that the price of a life insurance policy is not being taken into consideration, there are good reasons why it is indeed an intelligent idea to own more than one policy.

First of all, there are several different types of life insurance policies, each with its own features and benefits. Very often, more than just one type of policy is appropriate for a person’s given situation. For example, many of my clients purchase both Term and Universal Life insurance policies at the same time. The Term policy is typically for a significantly higher face amount, while the Universal Life policy is for a smaller, more modest death benefit. The total coverage of these two policies is combined, giving the client the protection they need during the years that their children are younger, their mortgage balance is higher, and their personal debt is still unpaid.

However, in 20 or 30 years, the Term policy expires when their need for such a high amount of life insurance coverage is no longer present. Their children will be self-sustaining adults, their mortgage will be paid off (or at least close to it), and their personal debt should be under control. The large chunk of coverage that was provided by the Term policy will be gone, and the smaller, more age-appropriate benefit from the Universal Life policy will still continue. This method alleviates the client’s need to go through the underwriting process again, decades later, when their health may not be in the same state it was originally. Also, the client will actually experience a decrease in their monthly premium payments with the expiry of the Term policy, rather than a potentially dramatic increase that would come with acquiring a new policy at a much older age.

Aside from the conceptual mechanics described above, there is an additional benefit to owning multiple life insurance contracts. With the present state of the economy, there is simply no way to guarantee that an insurance company will still be around, and financially solvent, in 20 or 30 years from now; quite a bit can change over the course of a few decades. By purchasing policies from different companies, a person can spread their insurance risk across multiple corporations. The hope is that if one life insurance carrier goes under, at least there are still policies still in force with other stable companies.