Can you have too many insurance policies?
There is no law against having multiple insurance policies, life insurance or otherwise. The downsides to having multiple policies have to do with additional costs and hassle of keeping up with multiple policy payments.
Why should you have more than one policy?
- To account for your loss of income when you pass away and to provide financial protection to your family
- To cover debt or loans, such as a mortgage or car note’
- To provide financial security to a business partner and enable your business to continue uninterrupted after you die
- To cover potential inheritance tax liability against your estate.
Spread the Risk
Additionally, since different policies have different premiums and some insurance companies will deny claims for certain reasons that others would not, having multiple claims would spread the risk of any one claim being denied.
Economically, it could make sense to buy a cheaper policy that has many exclusions, a more expensive but expansive policy, and have the policies differ in years of coverage.
This way, the cost is more distributed and policies are in effect for different situations.
Disclose Secondary Policies
There are, however, steps that need to be taken to make sure that multiple policies pay out in the ways that you intend. The companies you purchase the policies from must each know that you have additional other policies.
Disclosure of your other policies might be on the applications themselves or, if there is not a question that addresses this, you should take steps to find out how the company handles the existence of other policies.
The existence of other policies affects the value of the policy, since there is a limit on value based on age and income, or what other sources of income could be funding a family’s financial obligations after death.
If the other policies are not disclosed, claims could be denied based on material misrepresentation or other reasons.
How to apply for multiple policies?
There are ways to make applying for multiple policies easier.
There are agencies you can hire which will represent insurance companies. This way you can just use one medical exam and packet of records, and avoid spending a ton of time doing repetitive submissions.
However, it is still important to do independent research on each of the policies to ensure that all the information that the agency provides to you is accurate, and that you have taken advantage of all the additional riders that may come with certain policies.
What happens to insurance policies after divorce?
If you are married and intend to plan for situations in which a separation might occur, be sure to consider how the multiple policies and benefits will be divided. In the case of Hall v. Hall, the wife of an insured person who held multiple policies had a divorce decree which split the cash value of the life insurance policies. One of the issues in this case had to do with weather the policies only included the ex-husband and wife’s policies, or the policies of the whole family.