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February 06, 2009


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I actually have two policies w/ two different companies. Frankly, this is just due to the fact that I purchased the second policy after we got out of debt, and it was less expensive than the policies that the first company was offering. After reading this post, it does feel good to have a little diversity. Interesting.

When you have coverage from multiple insurance companies, won't claims become a messy battle over which company is liable? My policies all have something along the lines of "if you have other applicable coverage, our company is the last to be liable".

To avoid this, I suspect you'd need to buy insurance products that are slightly different and account for primary/secondary payers. For example, a standard umbrella policy only pays after a large deductible and usually doesn't overlap with other insurance. On the other hand, if you do this, you aren't really diversifying your risk, just stratifying it....

Maybe I'm missing something though. I'd love to hear your ideas on how to implement this.

I think have diversification has become even more important in today's climate. Who would have thought AIG would be in the position they are today. Even though someone's rating is high today, what will it be 7 years from now? For me, I have policies with 4 different companies and my overall costs are not that much higher than a single policy.

For short-term insurance (e.g annually renewable life, auto, house, etc.) it's not such a big deal, but for long-term issues (long-term care, life) it's valid. I think the concept of paying a bit more for life insurance from multiple companies is very valid - it's like buying insurance for your insurance. Not sure ho you would do it for long-term care insurance though.

Recently, as the financial crisis has continued to unfold, I have become more concerned about the viability of my life insurance company (Protective Life) that has had its bond rating donwgraded. Still, it seems to have stabilized for now.

I recommend buying additional policies based on need & using that opportunity to diversify across companies (preferably all from the high-rated, reasonably-priced group). I bought my first insurance (3 policies) after marriage from firm A. After we had a child, I bought additional insurance, this time from firm B. If we decide to take a loan for buying our house, I'll take additional insurance, this time from a new firm. I think this approach introduces diversification without the need for forfeiting low premiums.


When dealing with multiple policies, life insurance is different than health insurance. If you have 5 life insurance policies, with 5 different companies they are all obligated to pay if you die. With health insurance there are issues as to who is responsible for claims as the medical provider is only going to be able to collect the fee one time, it just becomes a matter of who is going to pay it.

Everybody else,

I'm not sure I would recommend going out a purchasing policies from multiple companies just because you will end up paying extra policy fees and losing out on the big cost breaks that usually occur at $250K, $500K, and $1 million. Keep in mind that you will need to refresh your coverage from time to time, usually upward as your salary goes up and you have more to insure. Rather than cancel my old policy, I plan to layer another on top of it from another company. This usually makes since because your rates go up as you get older so you usually don't want to give up the locked in lower rates from the old policy.

I always stick with the biggest companies that are AAA rated. Sure they might be bought and sold but the policy still rmains intact as it is part of the value of the business

The lack of diversification of life insurance is completely idiotic. In the coming years as waves of Boomers die we are going to discover more and more about the shady risks companies have taken on to get "short term gains" (premiums) at the expense of "long term liabilities" (death claims earlier than accounted for). Companies will teeter. Big mutuals will go public. And if a big failure occurs that results in cash values being diminished or death claims being reduced to government protected limits, you can be sure that thousands of hungry lawyers will line up to take their shots at insurance professionals and even fee-only financial planners who failed to even identify the risks of failing to diversify coverage.

The notion that a diversified life insurance portfolio is more expensive is based on extremely simplistic assumptions and/or a very limited understanding of proper insurance acquisition strategies. I would be happy to explain this at length.

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