Why Would I Need Multiple Life Insurance Policies?
There are circumstances in which someone should consider taking out more than one life insurance policy. In general, someone takes out a life insurance policy because life insurance:
- Makes up for your family’s loss of your income when you die.
- Provides financial protection and security to your family.
- Can completely cover any debt such as a mortgage or car loan.
- Can provide financial security to a business partner, allowing your business to continue operations without interruption when you die.
- Can pay any potential inheritance tax levied against your estate.
You Need Different Policies for Different Life Stages
You may start out professional life as a single person, needing no life insurance. Then you might marry and have a couple of small children. You take out life insurance in an amount that takes into consideration your income, your family expenses, and how many years your children will require support. After your children grow up and move out, you need a policy that will financially care for your spouse and your funeral expenses. In this case you might have multiple policies that differ in years of coverage and coverage amount.
When you are younger It might make sense for you to buy a policy that is less expensive, that has many exclusions and a more expensive but expansive policy, and have the two policies differ in years of coverage. This way, the cost is more distributed and policies are in effect for different stages of life.
You Must Disclose Other Life Insurance Policies to the Insurers
You want to make sure that your policies pay out in the ways that you intend. The first and most important way you do that is to tell the companies you purchase the policies from that you have additional policies. You may be asked to disclose any other policies on your application. If the application does not include a section that provides for the disclosure of other policies, you should call the insurer to find out how they handle a client with multiple policies.
Why do you need to disclose other life insurance policies? Because they affect the value of any other policy, since there are limits on value based on age and income and what other sources of income are available to fund a family’s financial obligations after the death of the insured.
If you fail to disclose other policies, the claims of your beneficiaries could be denied based on your material misrepresentation or other reasons related to the failure to disclose. Why risk that, when you are planning your family’s financial future so carefully?
Having Multiple Policies Spreads the Risk of Claims Being Denied
Some insurance companies will deny claims for certain reasons that others would not. For that reason, having multiple policies with different insurance companies would spread the risk of any one claim being denied.
How Do I Apply for Multiple Life Insurance Policies?
You can hire an agency that represents several different insurance companies. The agency will require only one medical exam and packet of records. This way you avoid wasting time preparing repetitive application submissions. Even if you use an agency, you still need to research the policies you are considering to make sure that the information the agency provided is accurate. Also, you want to make sure you have taken advantage of any and all the additional riders that may come with any of those policies.
What Happens to My Life Insurance Policies If I Get Divorced?
In some states, your ex-spouse is automatically removed as beneficiary by operation of law. Not so in most states, so you want to check with your insurance agent to find out what must be done to change beneficiaries, if anything. If you pay child support and/or alimony, you are probably required by the terms of the divorce to maintain at least one life insurance policy for the benefit of your dependents. Where life insurance policies have cash value, they are property to be divided as part of a divorce.
In Hall v. Hall, the divorce decree split the cash value of multiple life insurance policies between the insured and his wife. The issue was, did the divorce decree include only the parents’ policies or the policies of the entire family? In this case, had the parties’ attorneys specified the distribution of each and every policy by policy number, it would have saved everyone a lot of time, trouble, and expense.
Veronica Baxter is a freelance writer and legal assistant operating out the greater Philadelphia area. She works frequently with Chad Boonswang, Esq., a busy Philadelphia life insurance attorney.
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