Can You Have More Than One Life Insurance Policy?

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Eighty-four percent of Americans agree that life insurance is an important tool to have in your financial toolbox. Yet a 2018 Insurance Barometer Study found that only 59% own a life insurance policy.

Technology has streamlined buying life insurance, and many companies don’t require you to have a medical exam to qualify.

The trouble is that there’s no one set amount for how much life insurance a person needs. While one policy might be enough for some, it might not provide enough coverage for others.

But can you have more than one life insurance policy?

Can You Buy More than One Life Insurance Policy?

The short answer is yes; buying more than one life insurance policy is possible. The question is whether it makes sense for you to purchase multiple policies.

If you’re buying a policy just because you can, your purchase might not be justified. Trying to buy a large policy, or several policies that add up to a significant amount can raise red flags. 

Insurance companies can become skeptical of your need for coverage and be wary of approving you because of the risk of insurance fraud.

To find out if additional policies would help your situation, you must consider why you’re thinking about it in the first place. For instance, life insurance protects your loved ones from the loss of your income when you die. 

That means your coverage depends on how much you make, the total debt you have and how many loved ones you’re leaving behind.

Why You Should Have Multiple Life Insurance Policies

Having multiple life insurance policies is more common than you might think. To know if it’s right for you, examine your circumstances and how additional coverage could help you.

“Laddering” to save money 

Your life insurance policy should cover your mortgages, debts, loss of income and funeral costs to support your family after you’re gone. However, some expenses can be large enough to drain the death benefit, leaving your family with little to no money.

But more significant life insurance policies cost more money. 

That’s where laddering comes in. If you buy a few policies with varying terms, you could reduce the cost of life insurance while still getting the coverage you need.

Instead of buying one large term policy for 30 years, consider a smaller policy to lower the cost and supplementing it with one or more policies to “ladder” your death benefit to match your financial need.

Here’s what that might look like:

  • Buy a 30-year term policy worth $500,000
  • Purchase another 20-year term policy worth $500,000
  • Buy an additional 10-year term policy worth $250,000

As you age and your shorter-term policies expire, your debts should become less, which also lowers the amount of coverage you need. By the time your 30-year policy expires, your house could be paid off so your family won’t necessarily need that extra $500,000 payout.

Laddering your life insurance can protect your family, and you save money, too.

Adding More Coverage

Your life circumstances determine how much life insurance you need. 

Let’s say you take out a new mortgage to invest in a rental property or move your family into a bigger, more expensive home. If the worst should happen, your loved ones can be responsible for covering the mortgage payments. 

Kids can also increase your need for coverage. You must consider the cost of raising them when picking out your life insurance policy if you have your first child or add a child to the family.

It might be easier or less expensive to buy a second policy rather than increase the benefit limit on your current one. 

Managing Risk

Life insurance companies can go out of business, just like any other company. If your life insurance provider goes under, it won’t be able to pay a benefit after you pass away.

To protect yourself, purchase policies from more than one company. Just like you wouldn’t invest all of your savings in a single company’s stock, you shouldn’t rely on only one life insurance company. 

Purchase different coverage from different businesses to diversify your policies and reduce your risk. 

Combining Policies for Better Coverage

Buying more than one policy can do more than save you money. It could also provide you with better coverage.

There are two basic types of life insurance available: 

  • Term life insurance provides death benefit protection for a limited period, such as 10, 20 or 30 years.
  • Permanent life insurance lasts your entire lifetime and can pay a benefit no matter when you die.

You get the ultimate in life insurance protection when you combine the two policies. 

Your term policy could cover debts, your mortgage and the loss of income to help the ones you leave behind to manage their day-to-day living expenses.

Permanent life insurance could pay for your final funeral expenses. Depending on the size of your policy, permanent coverage could also serve as an inheritance if you wanted to use it as part of your overall estate plan.

How Much Life Insurance Can You Buy?

Life insurance is a key piece of financial planning that can support your family if the worst should happen. However, it isn’t designed to replace wealth.

Even though buying more than multiple policies is possible, there is a limit on how much policy coverage you’re able to get. Ask for too much coverage, and you may face hurdles when buying life insurance.

Look at car insurance as an example. If you owned a car that’s worth $12,000, a car insurance company wouldn’t allow you to insure it for $50,000. 

The same applies to life insurance, though placing a value on your life isn’t as easy as that of a car. 

Generally, your net worth and current income influence your insurability limit. Having multiple income streams, royalties or access to other valuable assets can increase the amount of insurance available to you.

The limit applies to all of your insurance policies combined. For example, let’s say your insurability limit is $1 million, and you already own a policy worth $700,000. You couldn’t buy another $700,000 policy because you’d exceed your insurability limit.

Which Types of Life Insurance Should You Consider

Life insurance comes in a few different forms, and each issue a payout to your beneficiaries upon your death. While there are two basic types of life insurance, term life and permanent life, different varieties exist within each category. 

The coverage that’s right for you depends on your circumstances and financial goals.

Term Life Insurance

A term policy is pretty straightforward and is the easiest type to purchase. Think about the time of your life when your passing would have the biggest financial impact on your family and buy coverage for that period.

For most people, the years between ages 25 and 45 carry the most financial weight. This is when people are less likely to have a significant amount of money saved and more likely to have debt.

If you’re 25 and want to protect those you care about until you have time to pay off most of your debt, consider a term policy for 20 years.

That way, your family can receive a death benefit if you pass during the time your coverage is active. However, if your death occurs outside of the 20-year timeframe, your insurance policy isn’t active, and your family won’t receive a payout.

Opting for a 30-year term policy can provide more financial protection. Keep in mind the price can go up as your term increases, so weigh the cost against the potential benefit to determine if the life insurance policy is worth it

If you’re not sure which term to choose, some companies will let you buy a policy that lasts two or five years. A short policy like that can give you financial peace of mind while you discover which life insurance option is best for your future.

Permanent Life Insurance

While term life insurance covers you for a specific time frame, permanent life lasts for your entire lifespan. Essentially, you can’t outlive your policy.

Some people prefer permanent life because your policy can offer a death benefit no matter when you pass away. Plus, a cash component is available that you gain access to during your living years.

The most common permanent life insurance policies you’ll find are whole life, universal life and variable life.

With whole life, your rate will stay the same year after year. If you buy when you’re young, you can lock in a lower rate for the rest of your life. Your policy also builds cash value that you’re allowed to borrow against while you’re alive.

Universal life insurance is a great option because rates are typically lower than whole life. The cash value grows tax-deferred, though your cash account can vary based on the policy you purchase.

Besides a death payout and cash value, a variable life insurance policy lets you contribute toward mutual funds. There’s more risk with this type of policy but also the potential to increase your cash value from high-return investments.

What Alternatives Exist to Buying Multiple Life Insurance Policies?

Term and whole life insurance are great options to protect those you care about after you’re gone. But there is another option to consider outside of buying multiple policies.

Life insurance riders can incorporate additional benefits on top of your regular coverage. Several types of riders exist, and each can increase the premium you pay. To make the most of your money, make sure the rider will give you enough protection to outweigh the cost.

The life insurance riders generally include:

  • Accidental death and dismemberment: Adds coverage to your policy that can pay a benefit if you lose a limb, your eyesight or your hearing.
  • Guaranteed insurability: Allows you to increase your death benefit without requiring additional underwriting, though this rider typically applies only to permanent life insurance policies.
  • Spousal: Extends your death benefit to your spouse in the event of their death.
  • Child: Provides an additional benefit for the death of your child.
  • Waiver of premium: If you’re unable to work because of a disability, you might not have to pay your premium.
  • Chronic illness: Provides early access to life insurance benefits to help cover the cost of daily living expenses if you become disabled.
  • Critical illness: Provides early access to your life insurance benefit if you require treatment for certain illnesses.
  • Accelerated death benefit: Provides early access to your life insurance benefit if you’re diagnosed with a terminal illness. 
  • Long-term care: Provides early access for long-term care, such as in-home nursing, if needed.
  • Return of premium: Refunds the premiums you’ve paid if you are still alive when your term policy ends.
  • Term conversion: Allows you to convert a term policy to whole life insurance coverage.

Riders are a great way to get additional benefits on your current life insurance rather than applying for a separate policy. Choices like these usually come with a deadline, so read the fine print to make sure you use the option before it expires.

Should You Apply for Multiple Policies at the Same Time?

While you can have several life insurance policies, never apply for more than one at a time. Multiple policy applications can slow down the process even if you’re just trying to compare prices from different providers.

Life insurance companies share information through the Medical Information Bureau (MIB) as part of the underwriting process. The MIB helps to prevent fraud and increased risk due to errors, omissions or misrepresentations on insurance applications.

If it looks like you’re applying for more coverage than your insurability limit allows, your application could be denied.

A better option is to work with a life insurance company to get multiple quotes. This way, you can find the best policy at the best price without jeopardizing your application.

Summary

Although you can’t exceed your insurability limit, buying more than one life insurance policy is perfectly legal. Multiple policies are a great way to protect against claim rejection, save money on premiums and provide for your loved ones if the worst should happen.

Life insurance needs vary from person to person. To know which type of coverage is best and whether you need more than one policy, consider your income, amount of debt and how long you need it. Also, evaluate how much you can comfortably afford to pay for an insurance premium.

Remember that you must disclose all facts, including whether you already have a policy each time you apply for new coverage. Tell the insurance company about other policies now to avoid a delay in the process.

Why do you want multiple policies? Please leave a comment to tell us why.