25:["$","$L26",null,{"category":"$27","relatedArticles":[{"id":"cG9zdDoyODM2Mg==","databaseId":28362,"postId":28362,"author":{"node":{"id":"dXNlcjo1MA==","databaseId":50,"userId":50,"avatar":{"url":"https://secure.gravatar.com/avatar/10ca58872f36412ceff58616bb971c22?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Amelia Josephson is a writer passionate about covering financial literacy topics. Her areas of expertise include retirement and home buying. Amelia's work has appeared across the web, including on AOL, CBS News and The Simple Dollar. She holds degrees from Columbia and Oxford. Originally from Alaska, Amelia now calls Brooklyn home.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Amelia","fullName":"Amelia Josephson","lastName":"Josephson","name":"Amelia Josephson","postCount":{"pageInfo":{"offsetPagination":{"total":334,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"ajosephson","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybTo0NzIy","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":4722,"categoryId":4722,"link":"https://smartasset.com/life-insurance/articles","name":"Life Insurance","postCount":{"pageInfo":{"offsetPagination":{"total":76,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"life-insurance","ancestors":null,"parent":null,"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$28","date":"2015-03-05T10:00:56","excerpt":"

\n","featuredImage":{"id":"cG9zdDoxOTE2NDI=","databaseId":191642,"altText":"Guaranteed Life Insurance","date":"2023-03-19T02:08:06","fileSize":49085,"mimeType":"image/jpeg","modified":"2023-03-19T02:08:06","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2015/03/guaranteed-life-insurance1.jpg","__typename":"MediaItem"},"modified":{"datetime":"2023-5-15","readable":"May 15, 2023"},"multipleBylinesByRole":{"editedBy":null,"reviewedBy":null,"writtenBy":null,"factCheckedBy":null,"secondEditor":null,"hideAuthor":null,"__typename":"Post_Multiplebylinesbyrole"},"adTargetingOverrides":{"fieldGroupName":"adTargetingOverrides","pageGroupNewKey":null,"__typename":"Post_Adtargetingoverrides"},"seo":{"canonical":"https://smartasset.com/life-insurance/what-is-guaranteed-life-insurance","metaDesc":"With guaranteed life insurance, you won't have to submit to a medical exam or fill out a questionnaire about your health, but you will pay high premiums...","metaKeywords":"","metaRobotsNofollow":"follow","metaRobotsNoindex":"index","readingTime":4,"title":"What is Guaranteed Life Insurance? - SmartAsset","__typename":"PostTypeSEO"},"slug":"what-is-guaranteed-life-insurance","status":"publish","title":"What Is Guaranteed Life Insurance?","uri":"/life-insurance/what-is-guaranteed-life-insurance","tags":{"nodes":[],"__typename":"PostToTagConnection"},"__typename":"Post","adPageGroupOverride":null,"bylines":{"writtenBy":{"id":"dXNlcjo1MA==","databaseId":50,"userId":50,"avatar":"$29","description":"Amelia Josephson is a writer passionate about covering financial literacy topics. Her areas of expertise include retirement and home buying. Amelia's work has appeared across the web, including on AOL, CBS News and The Simple Dollar. She holds degrees from Columbia and Oxford. Originally from Alaska, Amelia now calls Brooklyn home.","additionalMeta":"$2a","email":null,"firstName":"Amelia","fullName":"Amelia Josephson","lastName":"Josephson","name":"Amelia Josephson","postCount":"$2b","slug":"amelia-josephson","__typename":"User"},"editedBy":null,"reviewedBy":null,"factCheckedBy":null,"secondEditor":null},"category":{"id":"dGVybTo0NzIy","children":"$2e","databaseId":4722,"categoryId":4722,"link":"https://smartasset.com/life-insurance/articles","name":"Life Insurance","postCount":76,"slug":"life-insurance","ancestors":null,"parent":null,"__typename":"Category"},"isModifiedBeforePublished":false,"contentBlocks":["

The idea of guaranteed life insurance is an appealing one. Who doesn’t like the sound of a guarantee? Plus, guaranteed life insurance doesn’t require a medical exam during the underwriting process, making it an enticing option for the elderly and people in poor health. But before you go seeking out life insurance quotes, let’s review the details of guaranteed life insurance.

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Get life insurance quotes.

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Guaranteed Acceptance Life Insurance: The Basics

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We usually think of life insurance as a product designed to cover young and middle-aged people who have jobs and families, replacing the policyholder’s income. Guaranteed life insurance, by contrast, is often marketed to seniors. Older folks might worry about leaving their kids with the burden of paying for a funeral, or they might want to create a modest inheritance through a life insurance policy. Alternatively, they may be drawn to the advertising campaigns for guaranteed life insurance, which feature smiling silver foxes.

","

Guaranteed acceptance life insurance offers coverage, but not much of it. Applicants generally won’t be able to get six-figure policies (for that kind of coverage, you’ll need to submit to a medical exam). With its low death benefits, you might think that guaranteed life insurance would come with low premiums, too. Not so. Premiums for guaranteed life insurance tend to be high, and can even top the value of the death benefits over time. That’s a big drawback.

","

Find out now: Do I need life insurance?

","

Turned Down for What?

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Life insurance companies market guaranteed issue life insurance policies by promising that all applicants are guaranteed to have their applications approved. In practice, it’s more like “most” applicants. For example, folks living with HIV/AIDS will have their applications turned down, as will those who have been diagnosed with a terminal illness, or who are currently receiving long-term in-home or institutional care.

","

Life insurance companies assume that the people who want guaranteed life insurance are old and/or unwell, and so are more likely to pass away, triggering a payout. That’s why the premiums are higher, and why people with some of the highest mortality risk aren’t eligible for coverage.

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The Contestable Period

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If a policyholder dies within the first two years of coverage, the insurance company might not pay the policy’s death benefits. This two-year window is known as the contestable period because it’s an opportunity for the insurance company to contest a payout. Another name for it is the exclusion period. Some policies explicitly state that a death within two years will trigger return of premiums and not a payout.

","

If a policyholder passes away during the exclusion period, the insurance company will usually want to review the policyholder’s medical records for the preceding two years. It’s not always easy for policyholders’ children to supply those records, though, so death benefits sometimes go unpaid. If an insurance company decides not to pay out death benefits, they’re required to return the premiums already paid.

","

In some cases, if a policyholder dies during the contestable period, the insurance company may return the value of the premiums paid, plus a portion of the death benefits. This portion will increase as the policy matures.

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Find out now: How much life insurance do I need?

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Is It Worth It?

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Guaranteed life insurance comes with some risks. What do we mean by that? Well, there’s the risk that the premiums paid will top the value of the death benefits. Then there’s the risk that the policyholder will pass away during the contestable period and the insurance company won’t pay out. Finally, there’s the risk that a customer could pay more for guaranteed acceptance life insurance than he or she would for regular term life insurance.

","

Before committing to guaranteed life insurance, consider applying for regular term life insurance, complete with a medical exam. Even if your health isn’t perfect, you could still find an affordable policy that meets your needs. You have nothing to lose by shopping around, right?

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Our advice: don’t assume that a costly guaranteed issue life insurance policy is your only route to coverage. Instead, consider guaranteed life insurance to be a fall-back plan. And remember that if no one is dependent on your income, you don’t have any shared debts and you have enough saved in your estate to cover final expenses, you might not need life insurance at all.

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It’s a good idea to sit down with the person or people who would be your life insurance beneficiaries and go over your finances. Your heirs might tell you they could cover your final expenses among them without breaking a sweat, letting you off the hook for life insurance.

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Another advantage to having a financial sit-down with your family is that it fosters transparency. Many people designate beneficiaries for life insurance but fail to notify the people they have chosen. It’s an oversight that helps explain the millions of dollars in unclaimed property in each state. Don’t let your policy end up in limbo.

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Photo credit: ©flickr, ©iStock.com/Dean Mitchell, ©iStock.com/kali9

"],"experts":null,"link":"/life-insurance/what-is-guaranteed-life-insurance","published":{"datetime":"2015-3-5","readable":"March 5, 2015"},"shareInfo":{"title":"What Is Guaranteed Life Insurance?","origin":"/life-insurance/what-is-guaranteed-life-insurance"},"isNewsArticle":false},{"id":"cG9zdDoxOTI3MzU=","databaseId":192735,"postId":192735,"author":{"node":{"id":"dXNlcjo5OQ==","databaseId":99,"userId":99,"avatar":{"url":"https://secure.gravatar.com/avatar/67b8e9b4ee40c2b36d23ca662b66d02f?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Ashley Kilroy is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Ashley","fullName":"Ashley Kilroy","lastName":"Kilroy","name":"Ashley Kilroy","postCount":{"pageInfo":{"offsetPagination":{"total":530,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"achorpenning","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybTo0NzIy","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":4722,"categoryId":4722,"link":"https://smartasset.com/life-insurance/articles","name":"Life Insurance","postCount":{"pageInfo":{"offsetPagination":{"total":76,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"life-insurance","ancestors":null,"parent":null,"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$30","date":"2023-03-22T10:41:45","excerpt":"

\n","featuredImage":{"id":"cG9zdDoxOTI3MzY=","databaseId":192736,"altText":"what is a modified endowment contract","date":"2023-03-23T02:01:12","fileSize":27130,"mimeType":"image/jpeg","modified":"2023-03-23T02:01:12","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2023/03/senior-woman-going-through-paperwork.jpg_s1024x1024wisk20cPT0XyqDpxvReqAELOuuwxICnhFsG-PA4Isx5aufFECE.jpg","__typename":"MediaItem"},"modified":{"datetime":"2023-3-23","readable":"March 23, 2023"},"multipleBylinesByRole":{"editedBy":null,"reviewedBy":null,"writtenBy":null,"factCheckedBy":null,"secondEditor":null,"hideAuthor":null,"__typename":"Post_Multiplebylinesbyrole"},"adTargetingOverrides":{"fieldGroupName":"adTargetingOverrides","pageGroupNewKey":null,"__typename":"Post_Adtargetingoverrides"},"seo":{"canonical":"https://smartasset.com/life-insurance/what-is-a-modified-endowment-contract","metaDesc":"A modified endowment contract (MEC) is a cash value life insurance contract that has been overfunded to keep the full tax treatment of the policy.","metaKeywords":"","metaRobotsNofollow":"follow","metaRobotsNoindex":"index","readingTime":6,"title":"What Is a Modified Endowment Contract? - SmartAsset","__typename":"PostTypeSEO"},"slug":"what-is-a-modified-endowment-contract","status":"publish","title":"What Is a Modified Endowment Contract?","uri":"/life-insurance/what-is-a-modified-endowment-contract","tags":{"nodes":[],"__typename":"PostToTagConnection"},"__typename":"Post","adPageGroupOverride":null,"bylines":{"writtenBy":{"id":"dXNlcjo5OQ==","databaseId":99,"userId":99,"avatar":"$31","description":"Ashley Kilroy is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.","additionalMeta":"$32","email":null,"firstName":"Ashley","fullName":"Ashley Kilroy","lastName":"Kilroy","name":"Ashley Kilroy","postCount":"$33","slug":"ashley-kilroy","__typename":"User"},"editedBy":null,"reviewedBy":null,"factCheckedBy":null,"secondEditor":null},"category":{"id":"dGVybTo0NzIy","children":"$36","databaseId":4722,"categoryId":4722,"link":"https://smartasset.com/life-insurance/articles","name":"Life Insurance","postCount":76,"slug":"life-insurance","ancestors":null,"parent":null,"__typename":"Category"},"isModifiedBeforePublished":false,"contentBlocks":["

Life insurance policies are attractive vehicles providing tax-advantaged growth that the stock market doesn’t hinder. As a result, throwing as much money as possible into the account can be tempting. After all, who wouldn’t want to maximize their gains Unfortunately, contributing too much money into your account can result in the policy becoming a modified endowment contract. This account designation is unchangeable once assigned and produces different implications for taxes and cash value access. Here are the details and how to use the seven-pay test to stay on the straight and narrow. You may also want to work with a financial advisor to help you make the right long-term financial decisions.

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What Is a Modified Endowment Contract (MEC)?

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A modified endowment contract (MEC) is a former life insurance policy that has lost specific advantages due to accumulating surplus cash. For instance, permanent life insurance policies, such as whole life insurance, defer taxes on growth.

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In addition, the policy’s cash value combines with your death benefit for a higher payout to beneficiaries. However, a modified endowment contract irreversibly restricts access to the account’s cash value until the policyholder is age 59.5. Withdrawing money before then will incur a 10% penalty.

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History of the MEC

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In 1988, Congress established the MEC rule because life insurance was a means to avoid capital gains taxes instead of its intended purpose of providing a death benefit for families. During the 1970s to mid-1980s, long-term capital gains taxes ranged from 20 percent to 39 percent. So, consumers could purchase life insurance policies that allowed hefty upfront payments or a single premium payment and defer taxes on the accumulated cash value.

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In addition, they could take out tax-free loans from the policy, which could last a lifetime and be repaid from the eventual death benefit. However, the Technical and Miscellaneous Revenue Act of 1988 stopped this practice by introducing the “seven-pay” test, which identifies policies bought for investing and tax-sheltering instead of the death benefit and gradual growth.

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What Is the Seven-Pay Test?

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The seven-pay test is how the government determines if a life insurance policy turns into a MEC. Specifically, the test limits how much the policyholder can deposit annually during the first seven years. If the policyholder exceeds the limit with their contributions and doesn’t initiate a refund for the overage, the policy becomes a MEC.

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For example, say you open a $250,000 life insurance policy. It has a $5,000 MEC deposit limit. So, you can deposit $5,000 per year for the first seven years of the policy. However, if you were to deposit over $5,000 during any of those seven years, the government would consider the policy a MEC and tax it accordingly.

","

This rule applies even if you try to make up for a year when your contributions for $5,000. For instance, funding the policy with $4,000 in year one and $6,000 in year two would put your policy into MEC status. Fortunately, if you overpay into your policy, your insurance company will notify you. Then, you can opt for a refund of the surplus payments to retain your policy’s status.

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Lastly, it’s key to remember that policies that went into effect before June 20, 1988, aren’t subject to this law because it wasn’t in place yet. Plus, after the first seven years, the rule goes away for your policy unless you make a major adjustment, such as raising the death benefit.

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Pros and Cons of MECs

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As outlined above, MECs lose the cash value component of the death benefit. For instance, a $250,000 whole life policy that has accumulated $75,000 offers substantial cash reserves. However, if it becomes a MEC, you lose access to that money until age 59.5 unless you’re willing to pay a 10% withdrawal penalty.

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In addition, your policy gains the same tax status as a non-qualified annuity, meaning you pay taxes on earnings. The final drawback is that MEC status is permanent once it occurs.

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On the other hand, MECs still provide a death benefit to your beneficiaries. Plus, you’ll still experience the steady growth your life insurance policy originally offered and avoid the unpredictability of the stock market.

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MEC vs. Life Insurance Contract

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MECs differ from life insurance contracts because life insurance contracts don’t penalize withdrawals if the policyholder is younger than 59.5. Conversely, MECs impose the penalty. Plus, permanent life insurance policies have distinct tax-deferral advantages, while MECs have similar taxation as non-qualified annuities.

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MEC Tax Consequences

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Permanent life insurance policies shield earnings from taxes, meaning your money grows faster. Plus, you can take withdrawals or loans from your policy without incurring taxes if the amount is under the policy’s cost basis.

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In addition, you don’t have to be a specific age to touch the money in your life insurance policy. Contrastingly, MECs lack these benefits. When you withdraw funds, your earnings come out first, meaning you pay income taxes on withdrawals. Plus, you must wait until age 59.5 to withdraw cash or pay a 10% penalty to do so beforehand.

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Who Can Benefit from MECs

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Although MECs experience a downgrade from a typical permanent life insurance policy, they still provide advantages. Specifically, if you want a tax-advantaged payout for your beneficiaries and aren’t bothered by overfunding your policy, a MEC can help. In addition, you won’t pay taxes on the money in your policy until you withdraw it. Therefore, high net-worth individuals might find MECs desirable.

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The Bottom Line

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A MEC is a life insurance policy that has received excessive deposits over the first seven years of its existence. Violating the seven-year rule produces an irrevocable change to the policy and it becomes a MEC. Your access to the policy’s cash is limited to age 59.5 and you might pay more taxes on the policy than originally planned. However, MECs still retain the primary function of life insurance: providing a hefty payout to beneficiaries upon the policyholder’s death.

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Modified Endowment Contract Tips

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Photo credit: ©iStock.com/Rockaa, ©iStock.com/shapecharge, ©iStock.com/MangoStar_Studio

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Life insurance helps protects family members and others against the financial impact of the policyholder’s death. While many people don’t have life insurance, it can be a good idea for many others looking to protect their family’s future. Primary earners with families, especially minor children and non-working spouses are among the best life insurance candidates, for example. Those with sizable debts or who wish to leave a financial legacy by supporting charities may also have good reasons to buy life insurance. To help you with all your insurance and financial decisions, talk to a financial advisor.

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Life Insurance Ownership Basics

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A life insurance policy is a contract obligating an insurance company, in exchange for a premium, to pay money upon the death of the policyholder. The payment of the benefit helps protects family members and others against the financial impact of the policyholder’s death.

","

Life insurance can be a boon to survivors and others, but not everyone has or needs life insurance. Just over half of American adults own any kind of life insurance coverage, according to the 2021 Insurance Barometer study published by LIMRA, a life insurance industry marketing organization.

","

Next time LIMRA does its annual survey, it may reveal that most American adults have no life insurance coverage. life insurance ownership rates have been declining for decades, with no end in sight. As recently as 2011, the figure was 63%. In 1989, 77% of American adults had life insurance coverage.

","

The decline in life insurance ownership is likely due in large part to shifting social, economic and demographic trends. However, despite the sweeping changes in American life in recent decades that have reduced life insurance ownership, reasons to purchase life insurance endure.

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Top Reasons for Buying Life Insurance

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The main reason people buy life insurance, according to a 2015 LIMRA survey, is to pay for funeral expenses. The idea is that the proceeds from the life insurance will cover burial costs so that surviving family members will not have to be burdened by the outlay. This reason is cited by a slight majority of life insurance buyers, a 2015 LIMRA said.

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The next most important is to cover lost income. Just over a third of respondents to the survey said they bought policies with the express intent that the death benefits would be used to replace income lost if the policyholder died, allowing survivors to maintain their living standard.

","

Paying off debt, specifically mortgages, is the next most important reason. More than a quarter of policyholders who reporting being swayed by this argument for a life insurance plan for the death benefit to be used to pay off debts when they die. This can be particularly helpful in the case of someone whose spouse has co-signed loans. It can also protect an estate against attempts by creditors to collect money owed to them from the assets in the estate. In the event of a spouse or child with existing student loan debt, it can also be used to rid survivors of that burden.

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Transferring wealth to the next generation is next among the top reasons for buying life insurance. Life insurance benefits can be used to pay inheritance taxes on large estates, increasing the after-tax amount remaining to be distributed among heirs. Like a will, the provisions of a life insurance policy can precisely specify which heirs will receive benefits and how much each will get.

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Other Life Insurance Concerns

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There are many different types of life insurance, and the varieties can have a number of uses. Life insurance can also be used as a way to create a post-death legacy. By purchasing life insurance and designating a charity as a beneficiary, a policyholder can provide important financial support to valued causes.

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Business partners are among the most likely to benefit from having a life insurance policy. Many partnership agreements lay out terms of a buy-sell agreement calling for one partner to buy out the other’s share if the other partner dies. Funds to pay for the buyout can be provided by an insurance policy paid for by the company.

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The Bottom Line

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Life insurance exists to provide financial support to loved ones and others in the event of the policyholder’s death. Those who can best use life insurance include those with minor dependents, those with significant debt, those who want to plan to minimize estate taxes, those in business with partners and those who want to leave a legacy by supporting favored charities.

","

Tips for Getting Life Insurance

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"],"experts":null,"link":"/life-insurance/who-needs-to-buy-life-insurance","published":{"datetime":"2022-9-30","readable":"September 30, 2022"},"shareInfo":{"title":"Who Needs to Buy Life Insurance?","origin":"/life-insurance/who-needs-to-buy-life-insurance"},"isNewsArticle":false},{"id":"cG9zdDoxNjU2NzE=","databaseId":165671,"postId":165671,"author":{"node":{"id":"dXNlcjoxMzI=","databaseId":132,"userId":132,"avatar":{"url":"https://secure.gravatar.com/avatar/84dcefeec2c4c48841f085fc9d50d96e?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":null,"additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Bob","fullName":"Bob Haegele","lastName":"Haegele","name":"Bob Haegele","postCount":{"pageInfo":{"offsetPagination":{"total":110,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"bhaegele","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybTo0NzIy","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":4722,"categoryId":4722,"link":"https://smartasset.com/life-insurance/articles","name":"Life Insurance","postCount":{"pageInfo":{"offsetPagination":{"total":76,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"life-insurance","ancestors":null,"parent":null,"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$42","date":"2022-07-11T12:58:47","excerpt":"

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You’re legally permitted to own multiple life insurances, though life insurance companies may be more concerned about your total benefits. Carrying multiple life insurance policies can give you access to more coverage and better peace of mind. In this article, we cover what you need to know about buying more than one life insurance policy. However, if you’re thinking about utilizing multiple life insurance policies then you should probably speak with a financial advisor who specializes in helping you do it the right way.

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Types of Life Insurance

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Life insurance is not just a single type of insurance policy. There are two main categories of life insurance: term life and whole life. Each behaves differently and the right one for you will depend on what your goals are. Let’s take a look at what each one does and whether you should buy the same types of life insurance or if it’s better to mix and match.

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Term Life

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Term life is insurance that expires after a certain number of years, such as 20 or 30 years. If you pass away before the policy expires, it pays out the amount specified. However, it won’t pay out anything if you are still alive after the policy expires. You can renew the policy, but the rate may be much higher if you wait until it expires to renew it. These policies are popular because the premiums are lower than they are for whole life insurance.

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Whole Life

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Whole life insurance doesn’t have an expiration date like term life insurance does. It also builds up a cash value that can serve many purposes, such as tax-advantaged retirement savings. The lack of expiration on whole life insurance can be appealing, but they tend to have higher premiums than term life policies.

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Reasons for Having Multiple Insurance Policies

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For many people, a single life insurance policy is enough. But there are some reasons you might want more than one policy. Consider the following scenarios:

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How to Have More Than One Life Insurance Policy

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Having more than one life insurance policy is generally not difficult because insurance companies don’t put limits on the number of policies you can have. In fact, you can have more than one life insurance company with the same insurer.

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However, what insurers do limit is the amount of total coverage you can have, usually capped at around 20 to 30 times your annual income. The insurance term for this is your insurability limit. Insurance companies impose this limit because life insurance is meant to replace your income.

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Also, depending on the particulars of the policy, such as the coverage amount, you might have to provide proof of income and assets. But in general, there is no reason you can’t have two or more policies.

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Here are two ways you might go about having more than one insurance policy:

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1. Laddering

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Laddering is a useful strategy because of our oft-changing financial goals. In many cases, we don’t need as much coverage later in life. So, you might have three-term life policies: a 30-year policy, a 20-year policy and a 10-year policy. Each policy has a different coverage amount, with the 10-year policy being the most and the 30-year policy being the least.

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2. Buy Different Types of Insurance

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You might also decide to buy, for example, both a whole life insurance policy, plus a term life policy. For instance, you might buy a whole life policy with just enough coverage to cover your partner’s basic needs in case of your untimely death. You might then add a term life policy to help provide for your children.

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It should be noted that it does not matter if you have two whole life policies, two-term policies or if you mix and match each. What matters is that the amount of coverage and type of coverage you have matches your overall financial goals.

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Bottom Line

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There are reasons you might want to have more than one insurance policy, such as when you have a child or move into a bigger house. Insurers don’t usually mind if you have more than one policy, but they do tend to limit your coverage to around 20 to 30 times your income. As a result, you might have to provide proof of income and assets when buying a new policy.

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Tips for Buying Life Insurance

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