Risk of Having More Than One Life Insurance Policy
Although holding multiple life insurance policies is often part of a sound financial plan, there can be some downsides. Agents must follow specific rules outlining how they are allowed to discuss the products of other firms. Because of this, getting information about multiple life insurance policies can be difficult.
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Fees
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Companies may charge administration fees for each policy. Insurance policy fees are broken down into two parts: cost of insurance and policy fees. When you purchase multiple life insurance contracts, you're doubling up on the policy fees, often called a contract charge or administration fees.
Costs
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You may receive volume discounts for larger death benefits. Many policies offer discounted fees for larger death benefits. Your costs may be lower with a single policy representing the total death benefit of several policies.
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Complexity
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Remembering complex insurance policy provisions can be confusing. There are multiple types of insurance, including: term, whole life, universal, variable universal and second-to-die. Each policy works best for a specific reason, and understanding many financial instruments is more difficult than being an expert on a single policy. When you need to use a policy, you may not remember key points to help your financial situation.
Insolvency
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A company may experience financial problems before you file a claim. A weak insurance company could suffer financial difficulties and may not be solvent when a death benefit needs to be paid, eliminating a portion of your coverage. A single policy with a strong insurance company helps mitigate this risk.
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References
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