Monday, July 27, 2009

From the Mailbag: Life Insurance Times 2

A reader asks:
Can I have more than 1 life insurance policy? What "gotcha's" should I be aware of?
Yes, you can certainly have more than one life insurance policy. For example, lots of folks have one through work (usually as part of their group medical plan), and another they bought on their own. The advantage to the former is that the rates are usually low (since the face amount is usually only $10 or $15 thousand). The advantage to the latter is that it isn't tied to your job, so you don't give it up if you change employers.
Also, many people have more than one kind of policy: for example, a term plan to cover the mortgage, and a permanent one for longer term needs (income replacement, final expenses, etc). Some folks also find variable policies (which have sub-accounts that mimic mutual finds) to be useful in retirement planning.
If there's any "gotcha" (and I'm not saying there is), it's that carriers generally try to avoid over-insuring folks. That is, having so much insurance - in total - that one is "worth more dead than alive." So they'll ask about other plans already in place, and whether the new policy replaces or supplements those.
It's also a good idea to review your policies on a regular basis. One's needs, goals and desires change over time, and one's insurance policies should reflect these. And that's also a good time to make sure that beneficiary designations are appropriate and up-to-date.
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