Building a Portfolio of Multiple Life Insurance Policies

“When you think about it, it’s pretty odd that people will have 100 stocks in their portfolio but only one life insurance policy! There are advantages to multiple smaller policies rather than one big policy.”

An investment portfolio will typically contain a range of diverse investments. With different asset classes, industries, and financial vehicles, a well-designed portfolio prevents you from “putting all your eggs in one basket.”

Many portfolios begin quite simply, for instance, with a savings account and an index or mutual fund. Then, as the portfolio and its owner matures, other assets are added. Over time, a portfolio might include:

• other stocks, bonds or securities
• cash equivalents (including life insurance cash value)
• real estate investments and bridge loans
• private equity funds
• hedge funds
• alternative investments such as life settlements, oil and gas, or business partnerships
• precious metals
• and perhaps risky speculative investments such as cryptocurrencies or IPOs.

Some investments are held for the long haul. Others, for shorter time periods. But you wouldn’t expect the investment portfolio you have at age 25 to look the same at age 65. And yet, we’ve noticed a blind spot of sorts in many otherwise diverse portfolios. Sometimes, people’s life insurance strategy doesn’t evolve to fit their changing lives.

No one would dream of having a “portfolio” with only one stock or bond, and most real estate investors desire a portfolio of properties. Yet many people fail to go beyond the life insurance policy (singular) they purchased decades ago! It may still be a good policy—and likely has lower premiums than a policy you could obtain now because of your age. And yet… your life, your needs, your desires and something called your “human life value” (HLV) all change profoundly over time.

Occasionally, we run across the question: “Can you have more than one life insurance policy?” The answer is a resounding YES!

Not only can you have more than one life insurance policy, but there are reasons why multiple policies are an excellent idea. There are also advantages to multiple smaller policies over one larger policy. Let’s look at four reasons to consider a life insurance “portfolio” rather than one life insurance policy.

First, your needs and desires change over time.

You might acquire your first term life insurance policy as a young adult, or you might already have a whole life policy that was started for you as a child. When you are young with no dependents, a small policy can make sense. But what happens as a person grows older? Statistically, people tend to marry, have children, and buy a home (though not necessarily all three or in that order).

Marriage, children, and homes are milestones that represent responsibilities and commitments. They are also life events that motivate many to acquire one or multiple life insurance policies.

Of course, the desire for a death benefit is not the only reason for life insurance. Many people purchase whole life insurance primarily as a long-term savings vehicle that offers minimum guarantees, tax advantages, and an excellent chance for dividends. (Dividends are not guaranteed, but have been paid for over 100 years through every economy.)

Policies also provide protection against unexpected costs and liquidity for opportunities during the life of the insured. Besides the cash value of a whole life policy (which can be accessed for any reason) special riders allow a portion of a death benefit to be advanced in certain circumstances. For example, in the event of a terminal illness diagnosis, an accelerated death benefit rider would pay a benefit to the insured. Whole life insurance policies may be the most effective kind of emergency fund because of their flexibility and ability to protect a family against so many possibilities.

Secondly, your Human Life Value (HLV) typically grows over time.

Human life value is a financial term used to determine a person’s insurability. It represents the economic value of a life. Insurance companies use it to determine how much life insurance they can issue on an individual. The term also comes up in courts during wrongful death lawsuits.

Some individuals can acquire more life insurance than others. For instance, most children could not qualify for a multi-million dollar policy unless the family is wealthy or famous. In contrast, it would be common for a high-earning CEO or business owner to obtain one or more multi-million dollar policies.

HLV is roughly equal to 15 to 20 times a person’s income (or 1 x gross net worth). As a person earns more, they can qualify for (and afford premiums for) a new policy. At the same time, their desire for greater liquidity, savings and protection also increase.

Third, “timing is everything” applies to life insurance.

There are advantages to having multiple life insurance policies that have different term lengths, anniversary dates, or payment periods. Let’s see how it can work.

Somewhat similar to the concept of a CD ladder, some people build a “life insurance ladder” with policies of different term lengths. Of course, term insurance is for a set period of time, such as 10, 20 or 30-years. Whole life policies are permanent (provided premiums are paid).

A couple could obtain multiple policies to insure their full human life value and protect each other from loss of income with relatively affordable premiums while getting established in careers and raising a family. They might have term policies in place until their children become independent, other policies to last until age 70 or beyond, plus convertible term policies that would allow them to convert term into whole life as they are able.

Since whole life is such a excellent savings vehicle, we recommend adding smaller whole life policies over time as income rises. In this way, when term policies expire, you’ll have permanent life insurance in place. These policies create a legacy you can’t outlive. Whole life policies also provide multiple avenues for cash or cash flow in one’s later years should you need the money yourself. (I go into detail about this in P4P’s new Whole Life 101 course.)

There is also an advantage to having policies with different anniversary dates. Since it is most efficient to fund policies annually rather than quarterly or monthly, it helps if the premiums don’t all come due the same month or season!

And in certain circumstances—when you receive a large windfall, have ample liquidity and income, and your primary goal is preserving and maximizing the lump sum as an inheritance—a single premium whole life policy can make sense.

Fourth, it is beneficial to own multiple policies and different types of policies.

It increases control, safety, and flexibility to diversify the policies you own. Some examples might be:

Different types of life insurance. We recommend both term life insurance—preferably convertible term insurance—and permanent whole life insurance. Many people benefit from a blend of both. (We intentionally don’t include universal life in our recommendations.)

My husband and I still carry term policies in addition to whole life policies. Eventually, the term policies will run their course and we will still have the whole life.

Policies with different riders, such as one with a long-term care benefits rider and another with a terminal illness rider. (We employed this strategy in our family as well.)

Policies with different insurers and terms. You may want a whole life policy with a fixed rate loan and another with adjustable rate loan. (We prefer fixed, but some people like the flexibility of knowing they have options in different economies.) Or you may wish to have multiple smaller policies from different life insurance companies rather than one large policy from a single company.

Insuring multiple generations. Our family has purchased more than thirty policies over the years—many of which we still have! In addition to insuring ourselves, we also started whole life policies for our children and insured key employees and a parent. My children are now adults and they have their own policies, too. We have benefitted from each of these policies as they have increased our savings and the cash available to us.

Utilizing multiple life insurance policies.

A life insurance portfolio can give you more options for savings, protection, and in time, cash flow. Whole life is a very flexible product and policies can be used in different ways at different times. Your focus might be on saving. Others might look for opportunities to leverage cash value to create income through investments. For others, life insurance is their ticket for leaving a legacy. And for all, whole life provides access to cash in the event of an emergency.

You may wonder… what happens if, some day, you no longer want multiple life insurance policies? A life insurance portfolio actually creates greater flexibility. With multiple policies, you can choose to:

 1. Gift a policy to an adult child. If you own a policy and your child or grandchild is the insured, you can transfer ownership to them as an adult and they can take over payments. This is a fabulous way to transfer assets easily (and tax-free) and give children a “head start” on saving! (We explain this and other multi-generational strategies in our Perpetual Wealth book.)

2. Gift a policy to a charity. This is a great strategy to support a charitable cause, church, or educational endowment. Plus—you’ll likely get a tax deduction! (Consult your tax advisor.)

3. Annuitize a policy. This is a wonderful cash flow strategy we recommend for those in their 70’s or beyond.

4. Sell a policy. If you are in your 80’s and have a sizable policy you no longer feel you need, selling a policy to an investment fund (or possibly even a friend or family member) may be a viable option.

5. Stop or reduce payments on one or more whole life policies—without giving up the policy! Depending on the policy, you may be able to utilize a paid-up option or another strategy. We explain the multiple options for reducing or eliminating premiums for more mature policies in an article on ProsperityPeaks.com.

6. Surrender a policy and keep the cash surrender value. Surrendering a policy is always an option, although we encourage you to see if there might be a better option.

7. Keep the policy and use it to strategically reduce other expenses. Could the presence of a death benefit allow you to spend your money differently right now? Yes it can! For instance, a policy can allow you to sequence the spending of your assets in such a way that you save on taxes and have more money to spend!

Your needs WILL change over time. That much is inevitable. And a life insurance portfolio of multiple policies will give you more benefits, flexibility, and control than a single policy.

What questions do you have about building a life insurance portfolio? Contact Partners for Prosperity today to request an appointment or a quote in a form of a life insurance illustration. Or send us an email with a question to welcome@partners4prosperity.com.

Want to get the MOST of your life insurance policies? We recommend our new Whole Life 101 course at WholeLifeCourse.com.

—By Kim Butler and Kate Phillips