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BLOG 05/07/2021

Can you have more than one life insurance policy?

When it comes to life insurance, how much is too much of a good thing?

Most Americans understand the importance of life insurance: About 70% of people say that they need life insurance, according to a 2020 LIMRA study. Yet only half (54%) of adults actually own it. Even among people who have a life insurance policy, 43% either say they don’t have enough life insurance or aren’t sure if they have enough.

Sometimes, the best solution to keep you and your family covered is to own more than one life insurance policy. Buying multiple policies can help you increase or decrease your coverage over time and make sure your family has the protection they need through all of life’s changes.

Can someone hold two different life insurance policies simultaneously? When does owning multiple policies make sense for your goals? Take a closer look here.

Why would someone have multiple life insurance policies?

Life insurance is designed to protect you and your family financially should the worst happen. In exchange for your regular payments, your life insurance company promises to pay out a cash benefit to your loved ones if you die while the policy is in place. That payout provides important protection to your family at every stage along the way, making sure they’re not left struggling to pay the mortgage or bills if the unexpected happens.

As your life changes, your life insurance needs often change as well. When you’re first starting out, life insurance can help your partner pay the mortgage or cover any co-signed debt, like car payments. During the years you’re raising a family, changes like new babies, new houses, or even a larger salary can mean that you need more protection to cover your family’s day-to-day needs. In your later years, you might want a policy for different reasons, like covering funeral expenses or leaving something behind for a child, grandchild, or favorite charity.

Life insurance comes in a variety of types, coverage amounts, and lengths to meet a wide range of needs. There are two main types of life insurance: term life insurance and permanent life insurance. Term life insurance is less expensive and lasts for a specific pre-set period, typically between 10 and 30 years. Permanent life insurance lasts your entire lifetime and also has a cash value component you can borrow from or use as collateral for a loan while you’re still living.

Here are a few situations where owning multiple life insurance policies might make sense:

To Meet Growing Needs While You’re Raising a Family

If you are married with kids, then life insurance is often a must – anyone who has people depending on them financially typically needs coverage. In most cases, term life can offer what you need: flexible, affordable protection for your family.

It’s smart to buy young, since insurance rates are at their lowest then. Life insurance rates go up each year as you get older, and you also run the risk of developing a health condition that could make it more expensive to get covered – or keep you from qualifying at all. Once you lock in a rate, the premium stays the same throughout the insurance policy with most types of term life insurance.

If you’re in your 20s and 30s and just starting a family, your financial situation often looks different than it does 10 to 15 years later. If you think that your coverage needs might change down the road, you might plan to ladder policies.

This approach involves stacking – or laddering – multiple term life policies so they expire at different times. This can help make sure you have adequate protection at every stage of life and that you’re only paying for the coverage you need today.

For example, if you just had a baby and bought a house, you could purchase a $250,000 30-year policy to cover your mortgage and a $250,000 20-year policy to cover day- to-day expenses and college education for your child until they’re out of the house. If you already have an existing policy, you can also add a second term life policy later if your coverage needs increase.

Learn more about laddering life insurance here.

To Gain Permanent Protection if You Are Nearing the End of a Term Policy

Term life insurance is popular with families as just-in-case coverage. You can buy it to cover your family during your prime and hope that you don’t have to use it, just like auto or home coverage.

As you get older, though, you might want life insurance with a guaranteed tax-free payout to cover needs that you know will come up for your family. These might include:

  • Funeral expenses and related costs. The average funeral is $10,000 or more. Life insurance can help your family cover those costs to avoid financial burdens at a time when they’re already grieving. Your family can also use the death benefit to cover related end-of-life expenses, like medical bills or hospice care.
  • Leaving a legacy. If you want to leave behind money for your children or grandchildren, life insurance can help. Your loved ones can use this money to cover schooling, buy their first home, or save for the future.
  • Protecting a loved one with a disability. If you have a partner or child who’s still depending on you financially, permanent life insurance can help provide for them once you’re no longer there.
  • Giving a charitable gift. If you’re 50 or older, then final expense insurance can be a good way to get affordable permanent protection. Final expense insurance can help your family and loved ones cover costs like medical bills or even credit card debt, or add to other life insurance coverage you might already have. There’s no medical exam required, and coverage may be available even if you already have a pre-existing condition.

To Supplement Your Coverage Through Work

People often get life insurance coverage through work, also known as group life insurance. There are two main types of group coverage:

  • Basic group life insurance is a small policy that employers often provide to employees automatically as an employee benefit. Typical coverage amounts can range from $25,000 to a multiplier of your annual salary. These plans are typically low-cost or free to you, and you’re guaranteed to qualify for coverage.
  • Some employers also offer supplemental group life insurance plans. It’s usually easy to qualify, although you may need to fill out an “evidence of insurability” health questionnaire. Most plans allow you to buy coverage up to three or four times your annual salary.

Group life insurance is a fairly easy way to access life insurance since your company has already done all the research and selected the life insurance policy options. You are also usually able to get coverage at little to no cost.

If you have access to free or low-cost insurance through work, it often makes sense to accept it. However, keep in mind that group life insurance policies have some limitations. These policies typically come with lower coverage amounts, so they may not provide enough coverage when you need it. Most employers also won’t let you take the insurance policy with you if you leave your job, so you could be stuck without coverage if you make a career change.

To protect your family, consider supplementing your group life insurance policy with an individual term life insurance policy. A good place to start is by determining your total coverage needs. Our agents can also help answer questions about your total coverage needs and balance your individual policy with your group plan.

To Meet Business and Personal Needs

If you own your own business, you might be required to take out life insurance with your business as the beneficiary. You will likely want a policy to protect your family as well, so it often makes sense to supplement your business life insurance policy with an individual life insurance policy.

Is it better to buy a second life insurance policy or increase my existing policy?

That depends. In many cases, buying a new policy to supplement your current one can be more cost-effective than increasing your existing coverage.

Typically, you’ll need to reapply for coverage to increase your existing policy, and your insurance company will base your rate on your current age. Buying a second policy lets you keep your lower rate on the original policy, so you pay less overall.

If you’re buying a term policy, you can also customize the term length to meet your exact financial needs. For example, if you just welcomed a new child, you can buy a 20-year term to provide coverage until they’re out of the house.

Two policies does mean more to manage, but the savings can make it worth it.

Can you have multiple life insurance policies from multiple providers?

It is both legal and possible to buy multiple life insurance policies, including policies from multiple providers, but there are some considerations.

The maximum amount of life insurance coverage varies from person to person, but life insurance companies have a fiduciary responsibility to make sure that you’re not buying more life insurance than you need or can afford. If you’re trying to buy more than 20 to 30 times your annual income in life insurance coverage, you’re likely to raise an eyebrow and run into difficulties getting covered.

If you’re planning to buy multiple policies at the same time, it’s important to be upfront with your insurance company. Generally, attempting to buy multiple policies from multiple life insurance providers at the same time isn’t a good idea.

When you apply for a life insurance policy, your life insurance company may submit your information to the Medical Information Bureau (MIB). Applying for multiple policies at once can make it look like you’re trying to buy more coverage than you need, possibly resulting in a denial of coverage.

Can someone make a claim for multiple life insurance policies?

The short answer is yes. Since you have the legal right to own multiple life insurance policies, your beneficiary has a legal right to claim the death benefit for each policy.

Keep in mind that owning multiple life insurance policies means more policies to manage and track, increasing the likelihood that one of them might go overlooked after your death. Since you’re paying into each policy to ensure your family’s financial security, it’s important to do what you can so that they don’t go unclaimed later.

If you decide to purchase multiple policies, make sure to explain clearly to your beneficiaries how to find and access each one.

Questions to ask when considering multiple life insurance policies

Think you need more coverage than one plan can provide? These questions can help you determine your needs:

  • What are your goals in buying multiple life insurance policies?
  • Do you need a bigger death benefit? How will your coverage needs go up or down over time?
  • Can you afford the payments for a second life insurance policy? Life insurance is less expensive than most people think, but rates go up as you get older, especially if you are thinking about term life insurance.

In general, life insurance is an affordable way to provide financial protection to your family and an important part of your financial planning. While more Americans are underinsured than overinsured, you also don’t want to buy more life insurance than you need. The premiums you pay on excess coverage could go toward other financial goals, like building an emergency savings fund.

If you’re not sure how much life insurance is right for you, calculating your needs is a good place to start. Our life insurance calculator can help you crunch the numbers based on your income, expenses, and more.

If you have a life insurance policy and decide that you need more coverage, give your life insurance agent a call. They can help you assess your needs and figure out how to increase your existing coverage or add a new policy to keep your family covered.

Still have questions about applying for multiple life insurance policies?

We’re here to help. eFinancial works with top-rated insurance companies to help you find the right coverage for you and your family. Call us or start your quote online today.

 

At eFinancial, our goal is to make life insurance simple, affordable, and understandable for everyday families. This content is intended for educational purposes only. Each post is carefully fact-checked, reviewed and updated regularly to ensure the information is as relevant as possible.