A fairly frequent occurrence when I am consulting with a new client is for me to suggest that they consider two or more policies, usually staggering the term insurance lengths to more closely mirror their true need. This often triggers the question, “Is it OK to have more than one life insurance policy”?
It’s a fair question, kind of a hangover question from what people know about health insurance where you have primary and secondary companies and there is real concern on the part of the companies about your other coverage. The bottom line is, with health insurance, no one wants to pay more than they have to. So, if one company pays 70% of the bill, the other company for sure doesn’t want to pay more than 30% for instance.
With life insurance it’s a whole different animal. While life insurance companies do have financial justification guidelines in place to try to prevent people from being over insured, upon a person’s death, each policy is paid in full.
Probably the most common reason for having multiple policies is that needs have changed over the years and some of those good deals bought when we were younger are great deals now. So, rather than replace those policies, they often become the beginning of a portfolio. As needs change, policies are added.
Another reason, mentioned above, is the idea of staggering terms. If I have 10 years until my last child is out of college and on their own and 20 years until the end of my mortgage and 25 or 30 years until retirement, buying say $750,000 on 20 year term really doesn’t mirror my needs. Just as a simple example, owning three policies, each for $250,000 of 10, 20 and 30 year term lengths might make more sense and can often cost less than trying to make everything fit into one box.
Bottom line. It’s not only OK to own more than one life insurance policy, it may be the most prudent way to own the insurance. It works in my own portfolio and in many of my client’s needs. Might be worth getting a quote.