Having Multiple Life Insurance Policies
The primary purpose of life insurance is to make sure your death will not cause your loved ones financial distress. This means insuring your assets and leaving your family with a cushion should you pass. A popular question consumers ask when purchasing insurance is, “How much coverage do I need?”
It is possible (and common) to apply for multiple term life insurance policies. This advanced technique is called life insurance laddering.
Applying For Multiple Life Insurance Policies
It is possible to own multiple life insurance policies from different companies. Keep in mind life insurance companies can access an application tracker through the Medical Information Bureau (MIB). All life insurance applications are logged through MIB to establish you aren’t being insured beyond your coverage limits. When applying for multiple policies, it’s easy for insurers to look at your applications and determine you’re applying for too much coverage, which may result in application rejections.
However, it is possible (and common) to apply for multiple term life insurance policies. This advanced technique is called life insurance laddering.
Laddering Life Insurance Policies
Layering or laddering life insurance policies occur when a consumer purchases several term life policies with different term lengths rather than one whole life policy, or one large term life policy. This is often used when there are a few different purposes a policy is needed for.
For example, laddering could help cover a mortgage with one term policy, leave your children with a savings fund with a different policy, and supplement your income for your spouse with a final policy.
Laddering is not a good option for everyone. A single female in her early 30s who makes $65,000 a year may not have a need for laddering her life insurance. Not only would her coverage amount be questionable to insurance companies, but her ability to cover all of the monthly premiums could potentially be a risk.
Disadvantage of Laddering Life Insurance Policies
- Some insurance policies may have fees that cover expenses such as sales charges, mortality and expense risk charges, monthly per thousand charges, or general administration fees. Laddering your insurance may mean you’re subject to pay multiple fees for each policy.
- Starting your life insurance young is a good idea; however, if you are unsure of your future financial obligations, you could be excessively spending on multiple policies.
- Should your beneficiary need to file a claim, he or she would need to file a claim for each policy and present proof of death several times.
Advantages of Laddering Life Insurance Policies
- Term life insurance is temporary and typically has no cash value; it could cost significantly less monthly than a large whole life policy.
- A term life policy could offer more transparency to the policyholder because the coverage is over a set period of time, which consumers pay in previously-defined regular payments. Term life insurance gives you one product specific to insure one thing.
- A term life policyholder could have more control over his or her coverage as it’s temporary. When financial obligations change as life goes on, a term life policyholder could customize his or her coverage to best fit his or her needs.
It’s important to understand multiple life insurance policies can be taken out, but if not correctly, it could put your approval odds at risk. As with any insurance, it’s encouraged to fully assess your current and close future needs to determine the appropriate cover amount. Speaking with a licensed insurance professional can help you navigate through the life insurance application process.