When most people make choices in life insurance, they usually boil down to the type of policy to purchase. Should you buy term life insurance or variations of whole life insurance? Do you want simple death benefits or an investment component to your life insurance? How much total coverage do you need?
However, it may make sense to consider another question: Should you have more than one insurance policy? In some circumstances, multiple policies can make sense.
Life insurance companies generally do not care if you have more than one policy, or if they are spread among multiple companies. Insurers may even offer you discounted rates to hold multiple policies with their company. What life insurance companies do care about is whether you are asking for more total coverage than you need.
Your request for a second policy is likely to be denied if it appears to be excessive. At the very least, there will be increased scrutiny of your health.
Here are potential reasons and strategies you may employ for purchasing multiple life insurance policies.
- Buying Each Type of Policy – It is possible to hold forms of term life and whole life policies simultaneously. You may want to hold a smaller whole life policy with a minimal death benefit, and supplement this with term life policies that cover times of extra responsibility – for example, a supplemental policy spanning the time from the birth of your first child until your oldest child moves out or completes college.
- Complementary Terms – While it is usually possible to adjust coverage on a single policy to meet your needs, you could instead purchase multiple term life policies that overlap and cover different time periods in your life.
Again, the principle is to have the terms overlap for the times that you need the most coverage. That depends not on you, but instead on who would be the most affected by your loss. Children are the obvious reason, but you could have other dependents – perhaps grandchildren that whom you are responsible for, or a parent in long-term care.
- Multiple Smaller Policies – Perhaps you prefer not to keep your coverage with one company because you are worried that one company might become insolvent or find a sneaky way to not paydeny the claim.
It is highly unlikely that buying two smaller policies will be more economical than buying one larger policy for the same amount, but if it gives you peace of mind to “diversify” your life insurance among multiple companies, the extra cost may be worthwhile to you.
- Legacy Policies – You may have a whole life policy that was purchased for you as a child, but you want to supplement it with a shorter-term policy during your main working years. Another possible scenario is that you acquire a smaller policy through your work even though you have an existing policy.
Before you purchase multiple life insurance policies, research your options online and check with your insurance agent to see if there are less expensive ways to achieve your goals. Riders and adjustments to existing policies may be a less expensive way to get the coverage you need, and alternate investments may give you superior options to whole life benefits.
There are certainly circumstances where multiple life insurance policies can make sense for you. However, if you find out your spouse has taken out multiple life insurance policies on you, you may want to follow up with your insurance agents – as well as hire a food taster! and change your daily habits.