When One Life Insurance Policy is not Enough

Advisor September 1, 2019

Yes, it’s true that you can get as many life insurance policies as you want. However, there is a certain limit on the amount of total coverage you’re allowed to have during your lifetime.

This isn’t particularly a problem for most people because most life insurance policies are quite generous with their guidelines. Most of the insurance companies understand and respect the fact that you want to leave behind as much wealth as possible after you die. A general rule of thumb to follow with such policies is to get less than 15 to 30 times the amount you earn.

Most insurance companies will look at a number of factors including your income, liabilities and protection needs before deciding the amount of coverage you can buy

Buying Life Insurance

Getting two or more life insurance policies is not as uncommon as you’d think. Most people tend to buy one large policy to cover the crucial years and a smaller policy on the side for protection after the expiration of the term, usually to cover any final expenses like wealth transfer.

For others, getting more than one policy is simply a way to leave more behind for their children. There are plenty of good reasons to apply for more insurance. For example, it would make sense if you got a salary raise, had another child or got a bigger mortgage. Unlike other types of insurances, life insurance doesn’t have to be limited to a single policy.

A good example of getting multiple policies is the recent case of the biggest life insurance policy purchase by an anonymous billionaire who sought coverage of $201 million.

But this is where it gets interesting: the broker had to get smaller policies from 19 different insurance companies and piece them together to make a giant policy.

This goes to show that when you’re getting life insurance coverage, there aren’t too many limitations on how many policies you can have. Of course getting 19 life insurance policies doesn’t sound very practical if you’re someone with an average salary.

Determining Your Coverage

Most insurance companies will look at a number of factors including your income, liabilities and protection needs before deciding the amount you can buy. Normally, companies allow 15 to 30 times your yearly income but this amount can vary with factors like your age and health.

In addition to general life insurance policy, you can also choose additional coverage for your liabilities like paying off mortgage, student loan, business loans or any other debt. You can also apply for extra coverage if you want to fund your children’s education or any other special needs.

Business owners have even more reasons to apply for a bigger policy because besides personal use, the insurance also needs to cover business operations once you’re gone. But do you really need one than one life insurance policy. Let’s find out.

In addition to general life insurance policy, you can also choose a second small one to cover your liabilities like paying off mortgage, student loan, business loans or any other debt

Why Get More than One Policy?

Just because you can get more than one insurance policy from multiple companies doesn’t necessarily mean that you should. Bigger insurance companies offer a discount rate if you choose coverage greater than $500,000. So instead of choosing several smaller policies at different companies, it makes sense to choose a single big one that offers the discount advantage.

Now, if you were to go for larger coverage like $20 million or higher, it would make sense to spread yourself thin. Multiple policies also make sense if you’re looking for varying term lengths for different financial needs.

If you’re scared that the insurance company you have filed a policy with might go under, this could be another good reason to choose more than one insurance provider to spread out the risk.

But this isn’t something mot clients should be concerned about if they choose a reputable company that been around for hundred years or more. Not to mention that whenever a large company goes under, it is bought by a competitor or bailed out by the government.

If you only want coverage for your family during the most crucial years after your death, there is no reason why one policy shouldn’t be enough. But make sure that you’ve thoroughly calculated how much insurance you’ll need to cover family expenses after you’re gone. Because the last thing you want is you leave your loved ones underinsured.