Can You Have Multiple Life Insurance Policies?

Why Would You Want Multiple Life Insurance Policies?

The main reason you may want multiple life insurance policies is to ensure those who are financially dependent on you will be looked after once you’re gone. This way, your death will not be a financial burden to your loved ones.

You also may buy multiple life insurance policies in response to new or changing financial responsibilities, such as the arrival of a new baby. Sometimes multiple life insurance policies can be part of a strategy called “laddering” that can help you save money on premiums. Or your insurance needs may simply change over time.

Yet, despite the ability to own multiple life insurance policies, one 2022 study showed that up to 106 million U.S. adults have no life insurance at all or not enough total coverage. Only 47% of those without life insurance said they would be financially secure if the primary wage earner suddenly passed away, compared to 68% of those with life insurance.

Whatever your reason for wanting to buy life insurance, consider the important factors that go into purchasing multiple life insurance policies.

The more complexity you have in your financial life, the more you may need to take a nuanced approach to your life insurance protection strategy. Luckily, life insurance comes in many different policy types that can fit different situations now and in the future. In some cases, laddering multiple policies or using different types of policies can be more comprehensive than using a single large policy.

— Stephen Kates, CFP®

Financial Goals

Having multiple life insurance policies can help you achieve various financial goals, including income replacement and retirement planning.

Term life insurance — which guarantees financial protection over a specific length of time, usually between 10 to 40 years — can be an effective replacement for basic income and can cover large expenses like funeral costs or health care bills.

Permanent life insurance — which does not expire — builds cash savings, earning interest over time. Because of their higher premiums, permanent policies typically make the most sense for high-income earners looking for additional tax-deferred savings after maxing out other options. Permanent life insurance policyholders typically want to leave a tax-free inheritance for their heirs or lifelong dependents.

Laddering

Laddering life insurance policies is a useful strategy that can save you money on premiums over the long term.

The process of laddering your life insurance policies involves building coverage with multiple policies of differing amounts. Each policy expires at a different time, leaving you with continuous coverage but with decreasing premiums.

Let’s look at an example of how laddering term life policies might be beneficial:

Lawrence purchases three life insurance policies:

• $150,000, 10-year term policy to cover student loan debt and childcare costs
• $150,000, 20-year term policy to cover children’s college tuition
• $150,000, 30-year term policy to cover paying off mortgage and provide income for spouse

In this scenario, Lawrence is married and has two young children. His financial obligations include student loan debt and a mortgage as well as childcare and the eventual cost of sending his kids to college.

By laddering three term life insurance policies, Lawrence can maintain coverage for all of these financial responsibilities so his family doesn’t have to worry about those obligations if he passes away suddenly. His coverage amount declines every 10 years as his financial obligations decrease. Purchasing these three policies may be more affordable than purchasing one $450,000, 30-year term policy.

Major Life Events

You may buy additional life insurance in response to significant life changes. Starting a business, getting a bigger mortgage, or having a new baby might all qualify as reasons to carry multiple life insurance policies.

It can often be easier to purchase additional policies in the face of such life changes rather than try to replace an existing life insurance policy with one large policy that covers all needs.

In this case, one policy could pay for your funeral costs, another could cover your surviving spouse’s mortgage and a third might look after your children’s college tuition.

Risk Mitigation

Buying multiple life insurance policies can provide peace of mind by minimizing risk in the unlikely event one of your insurance providers fails or goes bankrupt.

This is a matter of not having all your eggs in one basket. While there are many “fail-safes” in the insurance industry to protect you, multiple polices can offer an extra layer of protection should something catastrophic happen to one of your providers.

Supplementing Coverage

Owning multiple life insurance policies is also a great way to extend your coverage beyond your main policy, particularly if that plan is provided through an employer.

Most people will work for multiple companies in a lifetime and may even change careers completely. It’s unlikely you’ll be able to keep your group life insurance through an employer if you leave your job.

Having supplemental life insurance coverage in one or more individual policies can provide peace of mind that final expenses will be covered even if you change jobs throughout your life.

Are There Limits to the Number of Policies You Can Have?

There are no limits to the number of life insurance policies you can hold. You can hold multiple life insurance policies from the same company, or you can hold policies from several different insurers.

When applying for multiple life insurance policies, however, insurers will look at any existing life insurance you may have, as well as the total amount you are insured for.

Your total insurability limit is typically between 15 to 30 times your annual income. This rule of thumb exists because life insurance is designed to make up for lost earning power, not to be a windfall for your beneficiaries.

How Do You Buy Multiple Policies?

If you are looking to buy multiple life insurance policies, there may be some requirements you need to fulfill before you qualify in the eyes of insurers.

Requirements for Buying Multiple Policies

• Disclosing all existing coverage
• Providing proof of income and assets
• Taking a medical exam

Many people will qualify for life insurance through their place of work as part of an employee benefits program. This kind of life insurance — called a group plan — is normally provided without the need to jump through hoops, such as medical exams.

These days, it is also possible to buy life insurance online. The online application process can be fast and easy. If you’re in good health, you might be able to get approved for coverage in just a few minutes. Make sure you work only with reputable brokers and if anything seems amiss or sounds too good to be true, look elsewhere. You don’t want to fall victim to an online scam.

The best advice for buying multiple life insurance policies is to always speak with a licensed agent who can find the best policy or policies to meet your specific needs.

Alternatives to Buying Multiple Policies

Buying multiple life insurance policies is an advanced personal finance strategy and it may not be suitable for everyone or every financial situation. If another life insurance policy isn’t the right solution for your situation, then there are similar alternatives to consider.

Life Insurance Alternatives

Annuities

Annuities are safe, customizable, long-term investment contracts issued by an insurance company. They provide a reliable, steady stream of payments to support your financial needs for the rest of your life or for a pre-determined number of years. Buying an annuity is a good idea if you are nearing retirement and are looking for a strategy to protect yourself from outliving your income.

Investing and Saving

Perhaps the simplest alternative to life insurance is to invest and/or save money over an extended period. This approach is particularly helpful the earlier in life you’re able to start.

Mortgage Insurance

Mortgage debt is the largest dcritiebt and monthly bill most people will carry in a lifetime. So, an alternative to another life insurance policy is mortgage insurance that includes coverage of critical illness and death. That way, should you pass away, your spouse or beneficiary will have the peace of mind knowing that the mortgage is paid.

Accidental Death and Dismemberment (AD&D) Insurance

Commonly offered by employers, AD&D replaces income and covers final expenses in the event of death or permanent dismemberment. AD&D can also be purchased privately or sometimes added as a “rider” to a base life insurance policy.