Are Multiple Life Insurance Policies Better Than One?

And Is “Laddering” and “Stacking” Policies Really Cost Effective?

There are those who insist that purchasing multiple life insurance policies, even a couple at a time, is better than purchasing or owning just one.  But our research has proven otherwise.

1. Purchasing multiple policies increases the fee(s) you will pay the insurance company annually as there is an annual fee for each policy.
   1. Therefore, purchasing two policies instead of one policy, using the same amount of money for premium, when the insured is the same person for both policies, and the coverage will relatively remain the same, is not logical and is not in your best interest.
2. Eliminating the paid-up insurance rider on a participating whole life policy for the sole purpose of freeing up premium so you can purchase another policy will;
   1. Increase your cost of insurance.
   2. Increase the annual fee(s) you pay the insurance company.
   3. Reduce your long-term guaranteed cash values.
   4. Reduce the dividends that you could have earned.
   5. Not be as effective as if you kept the paid-up insurance rider on the original policy.
3. Dropping the paid-up insurance rider to afford an additional policy makes sense if;
   1. You have more money to devote to another policy in addition to the premium you were paying for the paid-up insurance rider.
   2. You are still in good health.
   3. You are still at an age where the cost increase in coverage is comfortable and affordable.
   4. You have a convertible term policy that can be converted at a better class rating than your current rating.
   5. You are leveraging the cash values in one policy and have increased the volume of interest you are earning on those borrowed funds to the point where you have adequate cash flow to make the purchase of another policy comfortable and affordable for you.
4. Purchasing two policies at the same time on one insured person makes sense if more coverage is needed than what an affordable participating whole life policy provides. In such a case:
   1. Purchasing a convertible term policy to increase the face value for an individual is not only viable, it is the ethical thing for an agent to recommend.
   2. Adding a term rider to the participating whole life policy is not the same thing as purchasing a separate convertible term policy and may prove counterproductive for the policy owner.
   3. Purchasing two policies of the same kind on one person will cost more but may be beneficial if one policy is being purchased as a key person or to fund a buy-sell agreement.

That being said, borrowing from one policy to fund another policy on a long term or permanent basis is often called laddering or stacking. But by whatever name it is called by, it is imprudent.  Leveraging one policy to fund another policy will create a compounding interest rate that can destroy the first policy or worse yet, create a situation where one or both policies lapse and you end up owing taxes on the growth that was created by the dividend payments.

Why am I spending time discussing this topic?  Because we see these kinds of practices occurring more and more frequently.  People have been led to believe that a policy can sustain itself with an outstanding policy loan against it merely on the internal rate of return and dividends of the policy itself.  That is simply not true!  Especially in this age of low interest rates and moderate dividends.  But attempting to purchase any life insurance policy without first evaluating the long-term cost to benefits is folly.  And adding additional policies only intensifies that folly.

Policy loans should never be taken against a policy unless the owner knows that the interest and the premium on that policy can be paid out of their pocket.  To do otherwise is risking the possibility of inadvertent taxation, policy lapse and financial loss.

The basic rule of purchasing any life insurance should be affordability and comfort.  If a premium is not affordable you can’t purchase the policy.  And if the premium is not comfortable then you most likely will not continue to fund the policy and that can be costly to you.

The huge news about life insurance today is that it costs much less than most people believe it does.  This is true about both Term life insurance and participating Whole Life insurance. And that means that there is never a better time to see what a policy would cost on your life or the life a child, spouse or grandchild.

You can get that free life insurance quote simply by dialing 702-660-7000. We’ll not only provide you with a quote we’ll provide you will all the information you need to know to make an informed decision about how much coverage you could afford and what type of policies are best for you.  Then you can decide what is most affordable and comfortable.