How Many Life Insurance Policies Can You Have? I know you are interested to know, so let’s unveil these facts.
As much as you avoid thinking about death, it’s an occurrence that will inevitably happen. If you have loved ones relying on your income, it’s imperative you have life insurance in case of the inevitable.
Life insurance policies aid your family with funeral costs, residual financial debts and relieve the stress of daily living expenditures.
If you’re in for purchasing this insurance, one question you might have is how many life insurances can you have?
There are no legal restrictions on how many life insurances plans an individual may acquire. Many life insurance companies are unconcerned with the number of policies you buy.
However, they may be more concerned with the overall value of your benefits. Therefore, ensure that the benefits you’re looking for are acceptable for a person with your predicted income and assets.
Are you still wondering about multiple life insurance policies? Keep reading. This post sheds more light on these life coverages and how many of them you should secure.
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What is Life Insurance?
A life insurance policy is a legal agreement between an insurer and a policyholder. The policy guarantees that the owner’s beneficiaries will receive a certain amount in exchange for premiums when the owner dies. These premiums are installment policyholders makes while they’re still alive.
The life insurance application must accurately state the insured’s past and current health issues. It will also note other high-risk behaviors before the insurer can enforce the contract.
Types Of Life Insurance And How They Work
Insurance policies are of different forms, each tailored to suit various needs and budgets. Though there are many policy options, there are only two major types – Term and permanent life insurance.
Term Life Insurance
This type of insurance lasts only for a couple of years. It allows you to choose when you want to end the contract. They could be short-term, ranging for a year, or long-term, lasting as long as 30 years.
There are different types of term life insurance which are:
Decreasing Term Insurance
Decreasing term insurance is where the coverage decreases at a predetermined rate during the insurance policy. Premiums that the policy owners are to pay are usually constant during the contracts.
However, the coverage decreases either monthly or annually. The contract length varies from one to thirty years, depending on the insurance company and the plan they offer.
Convertible Life Insurance
Convertible life insurance allows policyholders to convert a term policy to permanent coverage without retaking a medical checkup. In other words, instead of limited insurance coverage, you can decide to switch to a permanent one.
The permanent policy will have the same value as the term policy with higher premiums. Since there’s a built-in option of converting without a medical exam, it’s more expensive even before conversion.
Renewable Term Life Insurance
When you get renewable term life insurance, you get a price for the year of coverage. These types are renewable, depending on what you want. Term insurance premiums rise each year, but they are usually the cheapest at the outset.
Permanent Life Insurance
This insurance runs for the lifetime of the policyholder. The policy only ends if the holder stops making payments or surrenders the coverage. They’re typically more expensive than term life insurances.
Whole life
This permanent insurance builds cash value. One of the numerous benefits of having cash value life insurance is that the holder can use it as a source of borrowing money.
Universal Life
This permanent life insurance with a cash value component that earns interest life offers a variety of payment options.
You can alter the premiums of this package over time. You can also set a fixed amount or increase the death benefit as you choose.
Indexed Universal
Indexed universal life insurance policy enables policyholders to earn a set or equity-based rate of return on the cash value.
Variable Universal
These policies allow the policyholder to invest their cash value in a separate account. The premiums are likewise adjustable, and you can set the benefit for a constant rate or increase with time.
Who Needs Life Insurance?
Whole life insurance can be a beneficial financial tool, but not everyone should purchase a policy. If you’re single with no dependents but sufficient funds to cover your debts and death-related expenses, you don’t require insurance.
The same should be the case if you have dependents and enough assets to cater for them upon your death.
However, if you’re the primary provider for your dependents or your debt exceeds your assets, you need life insurance.
A life insurance policy may also make sense if you operate a business or have cosigned debts. This includes loans, for which another party may be held liable in the event of your death.
Bear in mind that life insurance does not cover every circumstance. For example, a conventional life insurance policy won’t cover disability payouts or long-term nursing care costs if you become disabled.
However, for an additional premium expense, you can acquire long-term care insurance that covers medical disabilities.
Can You Have Multiple Life Insurance?
In a nutshell, you may have many life insurance policies, and they don’t have to be with the same firm. However, the more pertinent question is why you want more than one insurance.
Below are a few reasons why you should consider having multiple policies.
To Supplement An Existing Policy
Whole and universal life are the two most frequent types of permanent life insurance. These policies offer several significant advantages over term life insurance. One of these is the ability to accumulate a cash value that you can use while you’re still living.
On the other hand, permanent life premiums are far more expensive than term life insurance premiums. So, you can supplement the permanent policy with the term.
Take this scenario into consideration. Assume you already have a permanent policy that is just big enough to cover your spouse’s needs. However, this insurance might not be able to cater for your children in your absence.
Therefore, you can purchase a term policy to provide additional coverage while your children are still young. For example, you could settle for a low-cost 20-year term insurance policy that’ll suffice for their needs when they’re older.
Supplement To The Employment Policy
Many companies incorporate affordable life insurance as part of their compensation and benefits packages. This is because they can purchase term insurance at a cheaper rate than when one individual buys it.
But there are a few occasions where you might want to consider purchasing additional coverage. As previously indicated, your employer’s employment policy may not be sufficient to meet the needs of your family. Adding a second term insurance policy can help to make this up.
It is also possible that you will want to get permanent insurance to accumulate tax-advantaged cash value. With this, you rest assured that you will have protection later in life, possibly even into retirement.
If you leave your job, your term life insurance might not be “portable.” In other words, you won’t be able to take it with you when you move. If you can keep it, you’ll probably have to pay a higher premium.
Getting New Policies Before Expiration Of Old Ones
In contrast to permanent insurance, term life insurance has an expiration date. When your insurance term expires, the renewal rate will normally increase.
It will be worse if you are diagnosed with a medical condition like a heart condition or terminal illness. As a result, you may wish to obtain new insurance prior to the expiration of the current one.
For instance, if you obtain a 20-year term life insurance policy at 35, it will expire when you hit 55. However, you might be 40 years old and in relatively decent health. Adding a second 25-year term policy now protects you until you’re 65.
This option is usually less expensive than renewing your first policy at age 55. If you have bad health conditions, the premiums become more expensive. In other cases, you might no longer have what it takes to get life insurance.
Limits on the Maximum Amount of Life Insurance That You Can Purchase
Although you may own many life insurance policies, the overall amount of coverage available to you will be limited. This limitation depends on your income or net worth and age.
Below are the limits to the insurance you can have at different ages:
- 25 to 35 times annual income for persons under the age of 40.
- 20 to 25 times annual income for persons aged 40 to 50.
- 10 to 20 times annual income for persons aged 50 to 60.
- Five times yearly income for persons aged 60 to 70.
Limits apply only to one coverage. In other words, if you intend to apply for another life insurance, the company will re-evaluate your net income.
Remember that yearly earnings are not the only factor insurers evaluate when determining the amount of coverage you qualify for. Health problems, risky work and activities might reduce the amount of coverage you can buy.
Mistakes You Shouldn’t Make When Buying Life Insurance
As beneficial as getting multiple life insurance is, you must avoid a few things. Below are costly mistakes you should avoid when getting life insurance:
Putting Off Purchasing Insurance
To purchase life insurance, you need to take into account the amount of coverage you need and the price. When calculating life insurance premiums, every company also considers a person’s age and overall health.
To get the cheapest life insurance coverage, it’s a good idea to buy it early rather than wait till later. Remember that the cost of life insurance typically rises as a person gets older or their health worsens.
Health problems or illnesses may also disqualify you from coverage. Therefore, the more time you delay making a decision, the more expensive the insurance will be – if you can get it at all.
Purchasing the Lowest-Priced Policy
While it is critical to shop for an affordable policy, always consider the coverage you’ll be getting. Since life insurance policies can be somewhat complex, it’s a good idea to familiarize yourself with their features and benefits. If you don’t, you might make a terrible decision for yourself and your beneficiaries.
For instance, temporary life insurance is frequently less expensive than permanent life insurance. However, there is a catch: term life insurance protects you for a specified length of time, whereas permanent life insurance covers you until death.
Therefore, never rush to get the most cost-effective option. Instead, weigh your available options and consider what you want.
For example, if you want something short-term or a few decades, term insurance is a good idea. If you feel that you might have to change the type of insurance in future, opt for convertible term insurance. Still, if you’re sure that you want something that’ll run a lifetime, permanent insurance is your best shot.
Late Payment
When acquiring life insurance, you are required to pay a premium. Again, these rates depend on your insurance risk class. In other words, the company considers your health and age, amongst other things.
These premiums vary depending on your type of life insurance policy. Specific insurance may be time-sensitive in terms of premium payments. For instance, your guaranteed coverage may become void if you miss a monthly payment.
Sometimes, the company reduces the number of years that your policy covers. So, if your policy covers 60 years, for instance, the coverage might bounce back to 58. This could become problematic if you’re on a permanent policy.
Borrowing Against Your Insurance Policy
Permanent life insurance policies that accrue cash value may serve as a source of funds if you require a loan. This is an excellent benefit, but you must manage it properly.
If you withdraw excessively from your policy and it expires, all gains will become taxable. Not to mention that you may considerably limit the death benefit available to your beneficiaries upon your death.
Therefore, consult a tax expert to avoid any unexpected tax burden when collecting loans with your policy.
Conclusion
Life insurance policies give your dependents something to fall back on if you kick the bucket. To be sure they’ll be safe, multiple life insurance is the best option.
But, before doing this, check all your factors and settle for a plan that’ll favor you.
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