When Is Owning More Than One Policy a Good Idea?
Typically, people own more than one policy in 3 different scenarios:
- You own an employer-provided life insurance policy and a personal life insurance policy.
- You’re laddering various life insurance policies.
- You’re supplementing a term policy with a permanent policy.
These strategies can save you money in the long run.
Supplementing Employer-Provided Life Insurance
Owning a personal policy is always a good idea, even if your employer offers life insurance.
Getting group life insurance through your employer is a nice benefit, but it’s usually a small amount and ends if you leave your job.
Group coverage is never a guarantee. Employers can change benefits programs at any time.
Don’t wait to get a personal life insurance policy. You could become uninsurable or develop a medical condition rendering a personal policy unaffordable.
We recommend buying a personal life insurance policy in addition to your company’s coverage because:
- You own an individual policy. Your employer controls a group policy.
- Your personal policy follows you. If you leave the company, your group coverage likely ends.
- Your individual premiums don’t increase as you age. Group premiums do.
Laddering Life Insurance Policies
Laddering policies is when you buy separate policies to cover different needs. It’s a smart way to reduce costs without compromising value.
Two common laddering strategies:
- Stacking policies on top of each other that have varying lengths of coverage.
- Buying policies at different stages of your life so coverage overlaps.
Example of Laddering Policies at the Same Time
You’re 35, married, and have two children. You want life insurance coverage to ensure your children can go to college, the mortgage is covered, and provide income replacement for your spouse should you die unexpectedly.
Instead of purchasing a single $1,000,000+ policy, you can layer multiple policies to save money and avoid being over-insured.
Breakdown of coverage length and amount for each policy*:
Policy 1: $750,000, 10-year term to cover your children until they reach adulthood
- Monthly cost = $17.17
Policy 2: $500,000, 20-year term to cover your mortgage and daily expenses
- Monthly cost = $21.22
Policy 3: $250,000, 30-year term to replace your income until your spouse reaches retirement
- Monthly cost = $21.82
By layering these policies, for the first 10 years, you will have $1,500,000 in coverage. Then the amount of coverage will decrease as your insurance needs decrease.
Instead, you could buy a 30-year $1,500,000 that costs $89.45 per month. But you’d save money by laddering.
*Rates shown are for a healthy, non-smoking male.
Example of Overlapping Coverage
You get married and rent a house with your spouse. As 28-year-old newlyweds, your budget is tight and you rely on both paychecks to pay bills.
You each purchase inexpensive 20-year $250,000 term policies. As you’re working towards building a life together, this coverage provides financial protection should either of you die suddenly.
Ten years later, your family has grown to a family of four. You’ve also purchased a larger home.
You both decide you need more life insurance since you have more financial responsibilities. You each buy a 20-year $500,000 term policy.
Breakdown of coverage length and amount for each policy*:
- From ages 28-38, you each own $250,000 of life insurance coverage, paying $12.21 monthly.
- From ages 38-48, you each own $750,000 of life insurance coverage, paying a total of $36.91 monthly.
- At age 48, the $250,000 policies expire. You’re both left with $500,000 in coverage (paying $24.70 per month since the first policy dropped off) that will financially protect your family for another ten years.
Overlapping policies help keep costs minimal while also covering different financial obligations throughout your life.
*Rates shown are for a healthy, non-smoking male.
Supplementing a Term Policy with Permanent
The primary reason for life insurance is to replace your income so your loved ones can continue their standard of living without financial struggle.
Many significant financial obligations are temporary, like a mortgage or raising children.
Luckily, these responsibilities don’t last forever, making term life insurance is the best option for most families.
Term life insurance is customizable and can fit into most budgets. But a small permanent policy can cover end-of-life expenses and provide long-term peace of mind for your loved ones.
You may consider getting a comprehensive term life insurance policy and supplementing it with a modest amount of permanent coverage.
Example of Supplementing Term with Perm
Anna is 30 years old. She works hard and contributes 6% of every paycheck to her 401(k).
At 32, Anna gets married. She and her husband each purchase a $500,000 30-year term life insurance policy naming one another primary beneficiaries. Her premiums are $30 per month.
At 33, she and her husband also each purchase a $50,000 whole life insurance policy naming one another primary beneficiaries. Her premiums are $51 per month.
When Anna is 34, they have their first child.
At 35, Anna and her husband buy their first home. In this same year, she’s promoted and receives a raise. She also opens an IRA account and contributes $200 each month.
When Anna is 36, they have their second child.
At 53 years old, Anna’s $50,000 whole life insurance policy has a cash value of $12,221. If she desired, Anna could access these funds by borrowing against her cash value.
At age 55, Anna and her husband are officially empty nesters.
At age 60, she and her husband send in their last mortgage payment.
At age 62, their term life insurance policies end. Their whole life insurance policies are still active.
At age 67, Anna retires.
Policy cost breakdown:
- Age 32 – Anna buys a $500,000 20-year term policy for $30 monthly.
- Age 33 – Anna buys a $50,000 whole life policy for $51 monthly.
- Age 62 – Anna’s term policy expires. Her whole life policy coverage continues.
As the owner of a life insurance policy, you have several responsibilities to be aware of.
Pros & Cons of Owning Multiple Policies
Like anything else, owning multiple life insurance policies has advantages and disadvantages.
On the one hand, you can save money. On the other hand, each comes with an annual fee called a fixed policy charge (usually around fifty dollars).
The more comprehensive the coverage, the lower the cost—similar to discounts for buying in bulk. Buying several narrow policies comes with a high price tag.
Pros:
- You can save money in the long run
- You can rest easy knowing all of your insurance needs have adequate coverage
Cons:
- You pay annual fees for every policy you own
- There are more details and accounts to manage
- You may miss out on “bulk” discounts
Our quoting tool automatically includes all policy fees and band discounts in the calculations. Compare rates for multiple policies and explore how much you can save by laddering.
