Life insurance is an essential financial tool that provides protection and financial security to your loved ones in the event of your death. It’s a contractual agreement between an individual and an insurance company, wherein the insurer promises to pay a designated beneficiary (or beneficiaries) a sum of money upon the insured person’s death.
People can own multiple life insurance policies to enhance their coverage and ability to leverage the cash values. In this article, we will explore the idea of owning multiple life insurance policies and things to consider when deciding how many life insurance policies you should own.
Before delving into the question of how many life insurance policies one can own, it is important to understand what types of life insurance policies are available. The two primary types are term life insurance and permanent life insurance
This type of policy provides coverage for a specific term, typically ranging from 10 to 30 years. It offers a death benefit if the insured person dies during the policy term. Term life insurance policies do not accumulate cash value and can be more affordable for younger people needing to protect their income, pay off their home and other debts, and provide for their young family if they should pass early.
As the name suggests, permanent life insurance provides coverage for the insured’s entire lifetime. The most dependable type of permanent life insurance is whole life. Universal life, indexed universal life and variable life insurance have increasing costs of insurance over the life time of the policy which make them less dependable than whole life. Permanent policies not only offer a death benefit, but they can accumulate cash value as well.
If you’re thinking about owning multiple policies you may be wondering what you need to consider. Below we have a list of factors to consider before purchasing multiple policies.
The primary factor to consider when determining the number of life insurance policies is your coverage needs. Assess your financial obligations, such as outstanding mortgage, loans, children’s educational expenses, and income replacement requirements for your dependents. Multiple policies can help ensure that all these needs are adequately addressed.
It is important to evaluate your budget and ensure that you can comfortably afford the premiums each policy that you purchase. Struggling to pay premiums may lead to policy lapses, rendering the coverage useless and/or causing tax liabilities.
Different policies offer varying levels of flexibility. Most life insurance policies allow you to change beneficiaries. Some term life insurance policies may allow you to convert your term coverage to permanent coverage without having to redo your life insurance examination. Understanding the contract offered for each individual life insurance policy will help you decide if owning multiple policies is necessary for you and your individual needs.
Insurability refers to an individual’s ability to qualify for life insurance. Factors such as age, health, and lifestyle can affect your insurability. If you anticipate changes in your health or lifestyle which could impact your ability to obtain insurance in the future, purchasing a convertible term policy now, which can be converted to permanent coverage in the future, should be something you should consider.
Multiple policies allow you to tailor coverage to specific needs. For example, you may opt for a term policy to cover your mortgage and a whole life policy to provide lifelong financial support and protection for your family.
Just as diversification can reduce risk, owning multiple life insurance policies can mitigate potential gaps in your coverage and solve for other financial needs over time. Different policies have unique benefits, riders, and contractual guarantees which, when combined, can provide more comprehensive coverage for your financial plans, than merely owing one life insurance policy may provide.
Permanent life insurance policies with cash value accumulation can offer tax advantages. By owning multiple policies, you can potentially expand the tax benefits associated with your life insurance.
The decision of how many life insurance policies to own ultimately depends on your unique financial circumstances, coverage needs, and long-term objectives. Multiple policies can provide enhanced benefits, coverage, and financial flexibility. Yet is remains important to assess your budget, evaluate policy options, and talk with a qualified professional to ensure that your life insurance strategy aligns with your overall financial goals.
Remember, the primary goal of life insurance is to replace income and provide financial security for your loved ones. There are other financial benefits to owning life insurance as well, making it helpful for you to be fully informed before you make decisions about the life insurance you need for your specific needs.
Call your McFie Insuranceteam at 702-660-7000 and we’ll be glad to help you through the process and show you how a combination of different types of life insurance can work over time.