Buying life insurance is an integral part of any financial plan. It can help provide security for loved ones in the event of an untimely death and can also be used as a source of income during retirement. However, many people don’t realize they may need more than one life insurance policy.

Multiple Policies: How it Works

Having multiple policies can provide additional layers of protection and financial security, as well as the ability to customize coverage to meet your specific needs. Each policy will typically have its own benefits and features, including death benefit amount, premiums, term length, and riders.

Having multiple policies can allow you to spread the risk by having different policy types and providers. For example, one policy would cover a set amount for a fixed term, while another could provide coverage for longer-term needs. With multiple policies in place, you can also use some of the cash value from one policy to pay for premiums for another. Depending on the types of policies you choose and how they are structured, multiple policies can help create an even more comprehensive layer of protection for you and your family.

Here are three reasons to consider getting multiple life insurance policies.

1. Long-term financial planning

Having multiple life insurance policies can help ensure your family’s long-term financial stability, especially if you have children or dependents who will depend on your income after you’ve passed away. Multiple policies can ensure enough money is available to pay off debts and cover expenses in the event of your death.

2. Tax benefits

Depending on the type of policy and its structure, there may be potential tax benefits resulting from multiple policies. As such, you should consult a financial advisor who can help determine whether having multiple life insurance policies is right for you.

This might make you wonder – do you pay taxes on life insurance? Yes, in most cases, you will. When a policyholder dies, their beneficiaries receive tax-free money from the life insurance policy. However, that money is not tax-exempt when it comes to income taxes. If the policy earns interest or pays dividends, those earnings are taxable and must be reported as income on a federal tax return. In addition, any premiums paid for a policy may also be subject to income taxes. Also, any cash value associated with a permanent or whole life insurance policy could be subject to capital gains taxes if the account receives more than its cost basis.

3. Take advantage of different policies

Not all life insurance policies are the same; some may be better suited to certain situations than others. Multiple life insurance policies allow you to mix and match different kinds of coverage to ensure that your family is provided for in any situation.

Bottom Line about Life Insurance

Getting more than one life insurance policy can ensure your family has the financial security they need. Weigh the pros and cons of having multiple policies before making any decisions and consult a financial advisor who can help you find the best option. Taking the time to research your options now could save your family from financial hardship down the line.

Content within this article is provided for general informational purposes and is not provided as tax, legal, health, or financial advice for any person or for any specific situation. Employers, employees, and other individuals should contact their own advisers about their situations.