Can You Have More Than One Life Insurance Policy

In summary, while you can have numerous life insurance plans, insurers may limit the overall amount of coverage you can purchase. This is because life insurance is primarily intended to replace your income if you die, so you may need to demonstrate the need for additional coverage.

While one policy is sufficient for most people, having two or more policies can be beneficial if you have different coverage objectives. The number and type of insurance you purchase should be based on your current and future financial needs.

How many life insurance policies can you have?

You can have many life insurance plans with the same or separate companies. However, when you apply, insurers typically check at any current coverage to ensure that the policy you’re purchasing will not lead you to exceed your insurability limit. This life insurance death benefit maximum is normally set between 20 and 30 times your annual salary.

The insurability limit arises because life insurance is designed to replace your earning power rather than significantly increasing the wealth of your dependents.

Buying multiple life insurance policies: How it works

Having more than one life insurance coverage is commonly known as “laddering.” This is when you purchase multiple insurance to address various demands. Term life insurance is commonly used for laddering since it is less expensive than permanent life and allows you to purchase policies for a set number of years.

For example, suppose you are the breadwinner and want to cover your salary, mortgage payments, and your children’s college debts. Instead of purchasing a $1 million life insurance policy, you might acquire three term policies of varying periods and amounts to meet each need:

• 10-year, $500,000 term life policy. If you die during the first ten years, all three policies will be paid out, leaving your family with a $1 million life insurance death benefit. These funds can assist replace your income and pay off major debts, such as a mortgage, while your children are still at home.
• 20-year, $300,000 term life policy. If you die within the second decade, the first policy expires but the other two do not, and your family receives $500,000. The payout can help fund college or living expenditures for anyone who is still dependent on your income.
• 30-year, $200,000 term life policy. If you die within the third decade, only the third policy remains, and your beneficiaries will be paid $200,000. By this point, your children may be financially independent, and the lesser life insurance benefit can cover any outstanding expenses such as mortgage payments.

Can laddering life insurance save you money? 

This laddering method can save you money if you know your coverage requirements will not alter. According to Quotacy, a life insurance brokerage service, if a 30-year-old in good health purchases the three policies listed above, they will wind up paying a total of $10,470 in premiums after 30 years. For comparison, if the same applicant purchased a 30-year insurance with $1 million of coverage, they would pay $16,260 after 30 years.

However, if your coverage requirements are not as easy or predictable, you may be better off purchasing a single insurance and changing it over time. Many insurers will allow you to reduce your coverage and pay less, within certain limits. If your needs change, you can get more coverage; however, you may be required to complete a life insurance medical exam or answer health-related questions.

Why you may need more than one life insurance policy

Here are several scenarios in which you might want to acquire more than one insurance.

• You own a small business. You may want a term policy to protect your family and another to cover business loans or operational expenditures in the event that you die unexpectedly.
• You must cover final expenses. You could consider purchasing a second burial life insurance policy to cover final expenses such as funeral charges. These plans are a sort of permanent life insurance that pays out a little death benefit regardless of when you die, as long as you pay your premiums.
• You wish to leave an inheritance. If you want to leave a lump sum to someone regardless of when you die, consider purchasing another permanent policy, such as whole life insurance.
• You require greater coverage than your employer provides. A group life insurance policy is typically worth a year or two of your pay, which may be insufficient to meet your family’s needs if you die prematurely.