The number of life insurance policies you can hold depends on your financial goals and budget. Many financial advisors recommend carrying enough insurance to match five to 10 times your annual income, or even more. You may want enough to enable your survivors to maintain a comfortable standard of living and pay your debts if you die.
You can have multiple life insurance policies from the same or different insurers.
Insurance companies typically account for your existing coverage to help you avoid exceeding your insurability limit.
Laddering, a financial strategy of keeping multiple life insurance policies, might help a healthy person save money over time.
While holding several policies may incur higher costs in policy premiums, this can be a valuable investment for securing comprehensive coverage and peace of mind. Considering these factors can help you decide if multiple life insurance policies should be a part of your financial planning strategy.
There is no legal limit to how many life insurance policies you can own. However, you must demonstrate someone has an insurable interest in you. This means that someone will experience financial difficulty if you, the insured, passes away. The principle of insurable interest helps protect the insured and the company from insurance fraud.
Life insurance is meant to provide for your survivors in the event of your untimely demise. It can also serve to protect your assets and build your financial legacy. One of the best ways to accomplish these objectives is by strategically using multiple insurance policies: a combination of permanent and term policies can offer maximum coverage at the lowest cost. While the value of insurance is obvious, over 100 million Americans do not have enough coverage, according to a Life Insurance Marketing and Research Association (LIMRA) study.
Can you have more than one life insurance policy?
You can have multiple life insurance policies from the same or different companies. Although one policy could be enough in many cases, two or more policies can provide more income protection as financial situations change. You may also want to supplement your coverage if you can afford more.
A 2022 LIMRA survey found that over six out of 10 working people feel they only need enough insurance to replace five or fewer years of income for their loved ones. However, if your family depends on your income, this amount of coverage would fall far below what is needed to stay afloat.
When should you consider multiple life insurance policies?
There are times when having more than one life insurance policy makes sense. If your insurance may not cover the unexpected, another policy can provide security to reduce uncertainty for those you might leave behind.
Major life events
The addition of children in your family brings new obligations to manage now and future responsibilities to prepare for. Purchasing another life insurance policy may help ensure adequate coverage if you become the primary wage earner as well.
Taking on long-term debt such as a mortgage can change your life insurance needs. You might also need to buy a policy as part of a buy-sell agreement when starting a business.
Some people may choose to purchase separate insurance to cover final expenses or leave an inheritance.
Layer or replace supplemental insurance
You might want to carry more than the supplemental life insurance provided through your employer or another organization. Employer-provided coverage will typically end if you leave the job, which can make buying your own policy more appealing.
Additional insurance outside your job’s policy can enhance your income protection. According to LIMRA, the median employer-based life insurance death benefit is the equivalent of $25,000 or one year’s salary.
Should married couples carry multiple life insurance policies?
Whether married couples should carry multiple policies depends on how they’ve set up their family finances. Individual and joint expenses often increase in marriage, creating a need for more separate or combined policies.
Even if one spouse is the primary earner, both partners should carry at least one policy on each other. A joint or dual life insurance policy can cover both spouses so that the survivor receives the death benefit upon the partner's death. This could also be a tool to protect joint assets from taxes after death.
Survivorship life insurance, or a second-to-die policy, can save a couple money over purchasing two separate policies. This type of policy is widely used in estate planning.
Can I apply for life insurance through several insurers?
Yes, you can apply for life insurance through more than one insurer. Job-sponsored group insurance is one typical example of people with individual or family policies. This financial strategy is called laddering.
The ladder strategy involves buying multiple-term life insurance policies with different expiration dates. Laddering can help you adjust for coverage needs that may change with life circumstances, such as responsibilities for dependents and debt.
This option may be more economical than purchasing a single permanent life insurance policy. It also lets you make changes to your coverage levels throughout your lifetime.
How laddering may save money
If you have, for instance, a 10, 20, and 30-year policy concurrently, the yearly premiums could be lower than a single 30-year policy. This is because the coverage on the shorter-term policies will end while the insured is younger and hopefully in good health.
Tips for laddering
To determine how to stagger your insurance policies, you’ll need to look at how many years your family would need your income should you pass. Consider all your current and expected debts, including final expenses and education or healthcare costs.
What to know before buying another life insurance policy
Before buying more life insurance, understand your purpose. Determine how long your income would need to be replaced if you were to pass. You should consider current household expenses and debts, including car loans, mortgages, and business expenses.
It would be wise to estimate future costs for your family, such as childcare, college, or healthcare costs. If your current insurance will not cover all these needs, you can shop for another policy. Ideally, you would want to provide enough money to help ensure financial stability for your beneficiaries after your death.
If you currently have a term policy, you might be concerned about being unprotected when the policy lapses. In this case, you may want to explore permanent insurance options. Permanent insurance costs significantly more than a term policy but will last the rest of your life.
Having more than one life insurance policy is common among individuals who need to protect their income. Ask a financial advisor if this strategy might be advantageous for you.
Can I have two life insurance policies?
You can hold two life insurance policies to ensure adequate income protection. You can have voluntary supplemental coverage through your employer and purchase individual or family policies from a private insurer. It is legal to carry any combination of term or permanent insurance.
Should I purchase a second term or permanent life insurance policy?
A second or third-term policy may be ideal if you want to pay lower premiums and get coverage for a certain period. When a term policy expires, you may be able to renew it or convert it to a permanent one. If you want coverage to last until you reach 100 or later, a second permanent life insurance might meet your needs.
How can I cash out on life insurance?
People with permanent life insurance policies can access the cash value according to the terms. This money is available only during the lifetime of the insured. Withdrawals and loans can reduce the death benefit amount, while surrendering the policy cancels the coverage. Term life insurance does not feature a cash savings component.
- LIMRA. Facts About Life 2021.
- LIMRA. A Majority of American Families Rely on Workplace Life Insurance.
- Wolters Kluwer. Drafting an effective buy-sell agreement.