Up until the late 1970s, you could buy life insurance policies from kiosks at airports. You were essentially buying a term life policy that lasted as long as your trip. Unfortunately, death is a part of life. Life insurance is there to protect and provide for your family after you’re gone. For many people, one policy is enough. But for some reasons, two or more make sense. Your needs should drive the number and type of policies you buy. Read on to learn about life insurance basics.
You can own multiple policies from different companies, but when you apply, insurers will ask about current coverage to make sure the amount you want is reasonable and doable.
You can buy a lot without raising eyebrows. Insurers typically will ask for justification if the total would exceed your income by twenty to thirty times.
The most common way to buy coverage is to replace income in case a breadwinner dies prematurely. Having multiple life policies offers consumers more flexibility and more opportunities to save on overall costs. This is possible because multiple policies don’t cancel each other out. Rather, they work together to better meet your individual needs.
The solution: term life insurance, which covers you for a certain period, such as ten, twenty, or thirty years. Ideally, by the time the term expires, you don’t need life insurance. You have paid off debt, and the kids are grown.
Instead of buying one large policy, you could buy multiple policies of different lengths and amounts to match needs over time. For example, rather than a 30-year $1million policy, you could buy three policies:
- 10-year, $500,000
- 20-year, $300,000
- 30-year, $200,000
This “laddering” strategy can save money. It can work if coverage needs diminish and you can accurately predict them, but unfortunately life doesn’t always go as planned.
If you decide to buy just one policy and later find out you don’t need as much coverage, most insurers will let you decrease the coverage and pay less.
You may have other reasons to buy coverage, besides replacing income. Here are some examples:
- Small business owners may need a term policy to take care of the family and other business loans or fund a buy-sell agreement
- Long term care: a hybrid life insurance policy can be used to pay for long term care if you need it. If you don’t max out the benefits for care, it pays lout at death. You might own traditional life to take care of financial dependents and a hybrid policy to cover long term care.
- Estate planning: If you want to leave life insurance money to someone no matter when you die, you’ll need a permanent policy, such as whole life. Financial advisers advise buying term life for finite needs – the period when others depend on your income – and choosing a permanent policy for estate planning.
If you aren’t sure what you will need down the line—and who does?—you can buy a term policy now and a whole life with universal or variable options in the future. You’ll get tax-deferred savings that you can use for premiums, investments, or emergency living expenses. You can even borrow funds from some whole life policies, using the death benefits as collateral. If you have any questions about life insurance basics, consult online resources , as well as your local life insurance providers.