Why buy more than one life insurance policy?
There are several situations where it makes sense to have more than one life insurance policy.
- You need more coverage. The most common reason for multiple life insurance policies is to get more coverage or a higher death benefit. This is particularly true if you have a group life insurance policy from work. Employer-provided insurance is a nice perk, because the company will often subsidize some or all of the premiums. However, it may not provide all of the protection you need − and you may not be able to take it with you if you leave your job. In this case, you might choose a combination of coverage: two term policies, or one term and one permanent policy.
- You want coverage for a specific life event. You may want a policy that covers one term length − 20 years, for example − to support your kids until they become adults. And then a second policy that remains in place further into the future − like a 30-year term to help cover the mortgage should the unexpected happen to you.
“Over the first 20 years, both policies are in force, giving you the higher-value coverage you need during your core earning years,” says Oster. “Then, when the first policy expires, your total coverage decreases – and so does what you pay in total premiums, as you’re now paying for only one policy.”
- You want to supplement a permanent/whole life policy. Because permanent insurance lasts your entire life, it can be pretty expensive. To get the total coverage they need, some people supplement their permanent policy with a term policy, which tends to cost less. This could be an attractive option given that coverage needs change over time. You might require a larger amount of coverage until your children are out of college, with a lesser amount wanted after that time. After the term policy expires, you’ll still have your original whole life policy.
- You operate a small business. If you’re a small-business owner, personal life insurance is important because you may not have employee benefits like a retirement account, group life or disability insurance. The payout may help your family after your death if they rely on the income your business generates. Also among the types of life insurance policies to consider in this case is key person insurance. You can use it to cover loans or operational costs so the business can stay afloat if you pass away.
- You want to provide an inheritance. Even if you have no other assets to pass to your heirs, you can create an inheritance by naming them as beneficiaries on a life insurance policy.
- You want to make significant charitable contributions. By making a charity the beneficiary of a life insurance policy, you can make a much larger contribution than if you donated the cash equivalent of its premiums.
Keeping your existing coverage and layering on to it rather than replacing it can be effective, especially because insurance may become more expensive as you get older. “As time goes by, you may not want to get rid of that first policy, but just build on top of it to take advantage of the lower cost that you got in the earlier years,” Oster says.
Admittedly, at 30 or 35, you may not find it easy to map out your insurance needs over the next 20 or 30 years. Life situations change over time, often in unexpected ways, and you may find that the case for a second policy doesn’t present itself until much later. The good news is you don’t have to buy all of the coverage you might need at once. You always have the option of layering more in the future.
Of course, multiple life insurance policies mean more paperwork to keep track of, plus separate premium payments. And you’ll likely pay more for policies added later in life. Still, the peace of mind while you’re alive and financial security for your loved ones when you’re gone are certainly worth it.
Whether your best option is a single policy or several, it’s important to think long term in determining what you’ll need to help support your family if you should pass away. In all cases, it’s important to review your coverage periodically in light of any changes in your situation – both life and financial – and long-term goals. “Together with a life insurance specialist, you can decide whether or not modifications are needed,” Oster says. “Just don’t set it and forget it.”