Can I Have Multiple Life Insurance Policies? – Cravitz Financial & Insurance Solutions

Can I Have Multiple Life Insurance Policies?

Video Transcript:

How's it going everybody? It's Ryan here. Earlier today, somebody asked me if they were allowed to have more than one life insurance policy or not, and I've actually been asked this question quite a few times over the years so figured I would just put together this quick video and explain how it all works.

First off, yes, absolutely. You definitely can have more than one life insurance policy. And in fact, there could be some very good strategic reasons to have more than one life insurance policy. Now, where this gets confused sometimes is that there is a thing called insurance capacity, which I'll describe here in just a second. But let's presume that you're buying life insurance for the purpose of income protection, which is the most common reason why most people buy life insurance.

In fact, some people don't even realize that there's other reasons to buy life insurance. But if you're buying life insurance for income protection, meaning if you pass away, you can no longer make an income because you're not here, well, that's where life insurance can be there and help support the family, maybe the spouse, kids, whatever the case might be, okay. And that's really the situation for the person that I was talking to earlier today.

Now, there's several strategic reasons to have more than one life insurance policy. Let's just say, for instance, you need a million dollars of life insurance right now. So if he worst happened, you go to bed tonight, God forbid, don't wake up in the morning, your family would need a million dollars of life insurance, let's say. Okay, now we know the amount, but maybe you don't need a million dollars of life insurance for forever.

I'll give you an example. Let's just say you're 45 years old. If you're 45 years old and maybe what you need is you need a million dollars really for the next 10 years, because maybe you have young kids, maybe they're either in high school or in college, but you're still helping to support them, helping to pay for college or whatever the case might be. But after 10 years, you're thinking that they'll be out of school, they'll be self-supporting, whatever the case might be, but you are concerned. Let's say in 10 years when you're 55 years old, that if you were to pass away that that would be a problem then for your spouse financially, but that they won't need quite a million dollar, at least not at that stage. Maybe they would only need 500,000 as an example.

Let's say you need a million bucks right now at 45. You could get a $500,000, 10-year term policy and a $500,000, 20-year term policy. And we call this laddering life insurance policy so that in 10 years when the 10-year policy is done, you still have the other life insurance policy, the 20-year term, which would carry on for another 10 years until you're 65. And you can have more than two life insurance policies, so you can break that up even further.

Keep in mind with term life insurance generally most carriers will offer a 10 year or 15 year, 20 year or 25, and a 30 year. And then you also have permanent life insurance policies as well, where you can have coverage no matter how long you live. Sometimes it makes sense to have some term, maybe different term variations, maybe some permanent. It all depends upon your situation and your need for life insurance coverage.

Strategically, there's great reasons why you might need to have more than one life insurance policy. However, there is this thing, like I mentioned earlier, called insurance capacity. Let me go ahead and share my screen here with you and we'll take a look at it.

this is just a real quick spreadsheet that I put together, nothing pretty whatsoever. This is one insurance company's guidelines, and these guidelines do vary from insurance company to insurance company. And even each insurance company can vary their own guidelines based upon your unique circumstances.

As an example, I had a guy recently who has a special needs child and knows that he's going to need to take care of his child, financially, really for the rest of their life. If that's the situation, you may have what's called a higher insurance capacity than maybe somebody that didn't. There's all different, varying reasons or different, unique circumstances that you may have.

Let me explain what insurance capacity is here for the purpose of income protection. Again, these are general guidelines. let's say you're under 40 and you may be allowed to have up to 30 times your income, so easy math. Example, your income is $100,000 a year, multiply that by 30, you could have up to $3 million of life insurance coverage.

Now let's say you're wanting to apply here with ABC Life Insurance Company. You're thinking, okay, I'm allowed to get $3 million of life insurance, but that could be. But if you already have life insurance in place, they don't care how many life insurance policies you have, but they do care about what the total amount is. Let's say you already have $3 million of life insurance in force on your life already, then you probably can't get any more life insurance with ABC company that you want to apply with.

Now if you're looking to replace what you have, so you're going to drop the 3 million that you have right now is our example and buy a new 3 million, that would be okay. They just don't want you to have more than $3 million. That would be your capacity. And as you get older, you'll see that the multiple of income drops. And that's because, again, we're talking about this in terms of protecting your income.

For most people... I mean, everyone's situation is different, but a 25 or a 30 year old versus a 55 or a 65 year old, most likely a 25 or 35 year old has many more years to work and has many more years that they will want to make sure that their income is protected for. But let's say you're 65 years old, well, how many more years are you going to work? Do you really need to have 30 times your income at that age?

That's how the insurance capacity works. Again, it declines over time. The multiple income declines over time. Because presumably the older you are, the less years that you have to work, the less years of income that you need to protect.

Now, there's other reasons why you might want to buy life insurance and we're not going to go through that here on this quick video, but I just wrote down a couple to remind myself. It could be for estate tax liquidity, although that doesn't affect a lot of people anymore because the exemption is so high.

You could also be buying it for an asset maximization. In other words, certain assets when they go to your kids, if your kids are inheriting your money such as IRAs, are going to be fully taxable, you might want to buy life insurance to help offset those income taxes and such.

And then finally, there's key man life insurance policies and buy sell life insurance or life insurance to fund a buy/sell agreement as well. And both of those last two are things that a business might want to have. And there's some other reasons why you might want to buy life insurance, but these are some of the biggies right here.

Hope that answers the question. Yes, you can have more than one life insurance policy. If you have questions on this though, please do let me know. Take care.


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