Do I Need More Than One Life Insurance Policy?

Written by: Veronica Baxter | Boonswang Law

Just the fact that you are considering this question means you are thinking about adequately providing for your family or your business if something happens to you and your income is lost. That is very responsible planning on your part.

The downside to having multiple insurance policies, life insurance or otherwise, is that there will be multiple premiums for you to pay.  But the upside may persuade you to take out more than one policy despite this. According to AIG, there are reasons a person might want to have more than one insurance policy in effect in the event they die unexpectedly.

Reasons You Might Need More Than One Life Insurance Policy

  • To make up for loss of income, for your family;
  • To provide for payment of debt or loans, such as a mortgage or auto loan;
  • To provide financial security to a business partner so that the business can continue operating uninterrupted;
  • To cover potential inheritance tax liability against your estate.

Having More Than One Life Insurance Policy Reduces Risk That Claims are Denied Entirely

Because one insurance company will deny claims for certain reasons that another would not, having multiple claims would spread the risk of any claim being denied. Also, different policies from different insurance companies will have a different premium. For this reason, it might make sense to buy less expensive life insurance policy that has many exclusions and a more expensive but more comprehensive policy and enroll such that the years of coverage differ. The cost of the policies is then distributed over time and the two policies are in effect for differing life situations. the policies differ in years of coverage.

“Laddering” Life Insurance Policies

Because a young family’s needs change over time, as children are born and grow up and as the parents’ incomes rise, their insurance needs will also change. “Laddering” life insurance policies is a technique that a family can use to make sure they are adequately insured over every stage of life. Simply put, it involves purchasing layers of life insurance with differing terms and a different amount of coverage.

How to Organize Multiple Life Insurance Policies

You must take action to ensure that multiple policies pay out in the ways that you intend. Each of the insurance companies you purchase life insurance from must know that you have additional policies.  The application will likely have a section where you disclose this, but if not, you need to be proactive and call the insurer to find out how they want to handle that information.

The reason you must disclose the existence of other policies is that it affects the value of any of the policies because there are limits on the value of a life insurance policy based on age and income, or what other sources of income a family has after the death of the insured. If you do not disclose the existence of additional life insurance policies, your beneficiaries’ claim could be denied based upon misrepresentation on your part.

How to Apply for Different Life Insurance Policies

The easiest way to apply for multiple life insurance policies is to hire an agency that represents multiple insurance companies. The agency will require one medical exam and one collection of required records, and you avoid wasting time on repetitive submissions of the same material.

If you use such an agency, be sure to perform independent research on each policy prior to purchasing. There are often additional riders you can take advantage of, and of course, you want to make sure all of the information given to you by the agency is accurate. Take the time to do this - you want to be sure you are getting what you think you are paying for.

Multiple Life Insurance Policies and Divorce

If you are married and want to plan for the possibility that separation and divorce might occur, you must think about how multiple policies will be divided as part of the property settlement agreement otherwise thorny problems will arise.

For example, in the case of Hall v. Hall, 2013 UT App 280, the ex-wife of an insured person who held multiple policies had a stipulation as part of the divorce decree which split the cash value of fourteen life insurance policies equally.  The ex-wife sought an order to show cause, arguing that her ex-husband should be found in contempt for failing to comply with the terms of the stipulation, one of them, the division of the cash value of the fourteen life insurance policies.

The trial court found that the stipulation was ambiguous but referred to Mr. Hall’s attorney’s letter setting forth the fourteen policies as being the parties’ understanding, and found Mr. Hall in contempt and ordered him to comply. Mr. Hall appealed and the appellate court affirmed that all fourteen policies were to be divided.

Had the Halls discussed and agreed on this issue prior to marital problems arising, the stress and cost of prolonged litigation could have been avoided entirely. Be advised!

Veronica Baxter is a writer, blogger, and legal assistant located near Philadelphia.  She works frequently for Chad G. Boonswang, Esq., a busy Philadelphia life insurance lawyer.

Related: Your Top Life Insurance Questions Answered