It's Life Insurance Awareness Month: Should You Have Multiple Life Insurance Policies?

About the author: Lamar Watson, CFP®, is a Fee-Only Financial Advisor in the Washington, D.C. area that works with clients virtually across the country. Lamar's work with his clients focuses on budgeting, employee benefits, paying down debt, buying their first home, and investing. Lamar is the Founder of Dream Financial Planning, a virtual Fiduciary Financial Planning firm specifically designed to help young professionals and minorities take control of their finances and fulfill their dreams. Feel free to schedule a complimentary consultation to learn how we use the DREAM Financial Planning Process ™ to help our clients achieve their goals.

Did you know that September is Life Insurance Awareness Month? And though life insurance is important to discuss at any time of the year, some features of life insurance go beyond standard conversations.

For example, did you know that you can have multiple life insurance policies at once? One policy is often considered enough, but that may not always be the case.

Below we’re outlining the situations that may call for multiple life insurance policies. This information is designed to provide scenarios where additional policies could be beneficial and are not designed to supplement personal advice. Always seek out professional assistance before determining whether you need an additional policy.

When Would You Purchase Multiple Life Insurance Policies?

Life insurance is designed to provide supplemental income to beneficiaries in the unfortunate event of a plan holder’s passing. However, a single policy may not be enough to cover all of the expenses of a family.

Purchasing a second life insurance policy is an option for those that wish for additional coverage. Greater protection for loved ones is the largest benefit to this approach, though paying for multiple policies can be expensive. Here are some situations that may call for the purchasing of a second life insurance policy.

Lifestyle Changes

The birth of a child, changes in employment, or a new relationship are all examples of life changes we may think of when considering greater coverage. But another factor to consider is personal lifestyle changes, especially those that involve your health – If you’ve made healthy changes, then a new policy may cost less than before.¹ As situations change, so do the monetary needs of those around you. Consider this when examining the need for life insurance.

Age

According to the U.S. Federal Reserve, average family income decreases as the head of household reaches retirement age.³ Life insurance on the other hand tends to move in the opposite direction, increasing as one grows older.²

For this reason, it may be best to establish a plan at a younger age.² Consider your current expenses to determine whether this will be necessary.

Asset Accrual

Some financial goals will require long-term payment plans. Assets like cars and homes can take a while to pay off, increasing your monthly expenses by a specific amount for a given period.

Depending on your situation, a second life insurance policy can help account for these added expenses, providing additional income for a period to help offset the added cost until assets are paid off.

Often, these policies are set to different terms and typically referred to as laddering term life insurance.²

Tracking Policies

Multiple plans may provide more coverage, but be sure to keep track of each policy and costs. Premiums alone are expensive. Though, according to the National Association of Insurance Commissioners, over one billion dollars of life insurance benefits goes unclaimed, as beneficiaries are unable to locate their loved one’s policy.⁴ Be sure to establish proper information to track any new and existing policies.

Whether you need more than one insurance policy will depend on your unique financial and personal situation. Be sure to reach out to an insurance professional before moving forward to determine what coverage is right for you.

Dream Financial Planning Process ™

Whether you're managing student loan debt, starting a family, or considering buying your first home, the DREAM Financial Planning Process™ is tailored to the unique needs of busy professionals in their 30s and 40s. This process focuses more on short-term goals while you grow and evolve in your personal and professional life. So if you're looking for guidance on Financial Planning, optimizing employee benefits, budgeting, student loans, and managing your 401k or investments, we can help.

Complimentary Consultation

With uncertainty surrounding the economic stability of our country, it's okay to have fears and anxieties surrounding your own savings and investments. The most productive course of action from here is to reach out to Dream Financial Planning (or whoever your trusted advisor might be) and discuss your options. It's easy to have knee-jerk reactions when it feels like the bottom is falling out, but it is imperative to make decisions using research-backed data and a level head. If you'd like a Complimentary Review and risk assessment of your investment portfolio, feel free to send me an e-mail.

Monthly Newsletter

In the August Newsletter, I explore how you should invest money for your short-term goals after you've established an emergency fund. I also discuss how a Financial Advisor can help you avoid emotional decision-making with U.S. News and World Report and how to know if your Financial Advisor is the right fit for you. There are also blog posts where I outline how to complete a mid-year financial check-up and 5 college planning mistakes to avoid.

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