When Is One Policy Not Enough?
Having multiple life insurance policies can help you tailor your coverage to your family’s evolving needs.
Think about it: If buying a life insurance policy is a smart move, is buying more than one even smarter?
First-time buyers typically purchase a single policy to cover their income, debts and to help protect their loved ones. But depending on which milestones you plan to reach in the coming decades, you may want a policy that covers one term length – 20 years, for example – to help financially protect your children until they are financially independent. As well as, a second policy that remains in place further into the future – like a 30-year term – to help cover the mortgage should the unexpected happen to you.
“Over the first 20 years, both policies are in force, giving you the higher-value coverage you need during your core earning years,” says Todd Oster, assistant vice president at Amica Life. “Then, when the first policy expires, your total coverage decreases – and so does what you pay in total premiums, as you are now only paying for one policy.”
Admittedly, at 30 or 35, you may not find it easy to map out your insurance requirements over the next 20 or 30 years. Life situations change over time, often in unexpected ways, and you may find that the case for a second policy doesn’t present itself until much later. Fortunately, you don’t need to buy multiple policies at once – you always have the option of layering additional ones in the future.
It’s important to review your coverage periodically in light of any changes in your situation – both life and financial – and long-term goals.
Build on What You Have
Keeping your existing coverage and layering on to it rather than replacing it can be an effective option, especially because insurance may become more expensive as you get older. “As time goes by, you may not want to get rid of that first policy, but just build on top of it to take advantage of the lower cost that you got in the earlier years,” Oster says.
However, one thing you’ll need to bear in mind when shopping for supplementary policies is that you can’t purchase more coverage than you are eligible for. During the underwriting process, an insurer will make sure that you’re not “overinsured,” Oster explains. “You need to qualify from a financial perspective. If you already have $1 million in coverage and that’s the most you qualify for, we can’t sell you another policy.” In other words, remember that the cumulative value of your policies should cover all your financial needs, but it shouldn’t go over.
Whether your best option is a single policy or several, it’s important to think long-term in determining how much you’ll need to help support your family if you should pass. In all cases, it’s important to review your coverage periodically in light of any changes in your situation – both life and financial – and long-term goals. “Together with a life insurance specialist, you can decide whether or not modifications are needed,” Oster says. “Just don’t set it and forget it.”
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