A good number of people assume that they can only take one life insurance policy. Other insurance products such as home insurance or car insurance only allow one policy per person. For that reason, it is safe to presume that the same applies to life insurance. Unbeknownst to many, it is possible and legal to have multiple policies at all together.
Generally, people with multiple policies have life insurance coverage provided by their employer, plus their term life policy or permanent life insurance policy. But one can go beyond the scope. Among the common reason why someone may decide to take out multiple policies is that it allows them to cover various financial responsibilities. Some of these responsibilities include mortgage, tuition fees, funeral costs, spouse and children.
While many will settle for just one life insurance; here are legit reasons why you should get multiple life insurance policies.
The advantage of different maturities
Financial planner advice that rather than buying one 30-year policy, you can buy multiple policies with different maturities. Based on maturity, a policy could mature soon after you retire while another could mature long after you have died. For example, you could buy a 30-year term policy, a 20-year term policy, and a 10-year term policy.
The cost of each is more distributed and policies apply at different stages of life. This is some form of advanced financial strategy, where you end up paying lower premiums over the lifetime of the policies than if you just had life policy. This is also referred to as the ladder strategy.
Spreads the risk of a claim being rejected
An insurer can reject a claim for certain reasons. With this in mind, some policyholders will choose to have multiple policies with different insurance companies. They offer higher death benefits and more coverage. That added level of protection is necessary. If the claim is denied by one insurer and accepted by another, not all is lost for the beneficiary.
With multiple policies it is possible for the beneficiaries to make more claims at ago if you die. They will be asked to produce a legit copy of your death certificate to initiate the claim process with each of your insurers. Typically, a life insurance claim may take three months but could be less depending on several factors.
For additional coverage
At the moment, simple life insurance might be good enough depending on your circumstances and what the cover offers. But as time goes by, your financial responsibilities keep growing. It is prudent to buy another life insurance policy rather than increase the coverage limit on your current policy. In the long run, you will have multiple policies that differ in years of coverage and amount.
It is recommended that while purchasing multiple policies, you should diversify across insurance companies. Making numerous claims with the same insurer is subject to frustrations. The choice of a company should be informed by its claim settlement ratio. However, you should bear in mind that some insurers will apply a ‘multi-benefit discount’ if you buy multiple claims with them. Before going down this road seek a professional opinion.
In conclusion, the choice to switch to multiple policies will largely depend on your needs. Be practical on how you go about it. The insurance market has loads of information some which could be misleading. Make sure you do your homework thoroughly about these policies.
Read and understand provisions of different policies, terms and conditions, claims, pricing policy among other details. It is okay to stick to that one life insurance policy, for the sake of your family. You should be able to manage your current amount of life insurance coverage before thinking about getting multiple policies.