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Life insurance provides a layer of security that can protect your loved ones financially if you pass away. But what if the coverage one policy provides isn't enough? Can you have more than one life insurance policy?
The answer is yes. There's no limit to the number of life insurance policies you can have, and having more than one policy could be a smart way to meet your coverage needs. If you can meet an insurer's eligibility criteria, you can purchase a policy. Whether you should is another story. Here's what to know.
Why Would You Want Multiple Life Insurance Policies?
While it's possible to have several life insurance policies, there's a cumulative insurability limit to the amount of coverage you can get, which varies by provider and your age. Before proceeding, consider the reasons you might want multiple policies:
- You need more coverage than your group insurance provides. Most employer-provided group life insurance offers a basic level of protection that expires if you change jobs. If you plan on switching jobs soon, buying an additional policy could help prevent any gaps in coverage when you make the move. Or, you may want to purchase extra insurance If you need more coverage than your group policy offers.
- You want more protection due to a significant change. Your current policy may have perfectly met your needs when you first purchased it. But you may need more protection if you're now starting a business, having a baby or experiencing another major life event. In that case, you may wish to "ladder" your coverage with a new insurance policy that accounts for your growing needs.
- You want to round out your coverage. Life insurance prices and coverages vary by insurer, and many don't offer all the coverage options you want. For this reason, you may find that having multiple policies with smaller benefits can help you round out your coverage better than one larger policy.
- You want to take advantage of different types of insurance. You can also buy another policy to help you achieve a different financial goal. For instance, term life insurance is temporary coverage that typically costs less than other types of insurance, which can be beneficial when you have higher expenses, such as paying your mortgage and raising children. However, you may want to supplement your coverage with a permanent life insurance policy that offers cash value. This type of insurance carries a higher cost, especially as you age, so you may want to lock in a lower rate now.
How to Decide if You Need More Than One Policy
Adding another life insurance policy could help fill in the gaps in your current life insurance coverage. Since policies vary by insurer, your coverage might be great for certain needs but insufficient for others. Not surprisingly, a 2023 joint study by LIMRA and Life Happens revealed that 52% of adults with life insurance believed they didn't have sufficient coverage.
Having multiple policies certainly makes sense if you want to construct a long-term plan that addresses your changing needs. For example, insurance experts often advise carrying more coverage when you have dependents and significant debts like a mortgage. In this scenario, you might consider buying a large 10-year policy along with smaller 20- and 30-year policies for when your needs taper off. In many cases, this approach to life insurance laddering could save you money in premiums in the long run compared to buying one comprehensive 30-year policy that might be excessive by the end of its term.
Of course, there are many instances when one insurance policy is sufficient. If you're single with no dependents, a well-constructed policy could be enough for your final expenses and debts. Similarly, many group insurance policies offer coverage for spouses and the option to add coverage as your needs change. In that case, your group insurance policy may be sufficient enough to cover your financial obligations and future needs.
Pros and Cons of Buying More Than One Life Insurance Policy
Consider these benefits and downsides of having multiple insurance policies.
Pros
- Peace of mind: You'll be able to rest assured, knowing you're adequately insured.
- Higher coverage level: Starting a new business or having a child? Extra insurance could help satisfy your financial obligations if you pass away.
- Potential savings: It's often less expensive to carry multiple smaller policies than one large policy.
- Easily address life events: Adding a policy can help you financially address major life changes like having children or buying a home without affecting your existing policies.
Cons
- Higher fees: Your policies may come with administrative fees, which may be included in your premiums or deducted from your policy value. Since some insurers charge higher administrative fees for policies with monthly premiums, you may save money by paying your premiums annually.
- More difficult to manage: Keeping track of several insurance policies can be more time-consuming and complicated than managing a single policy.
- Higher combined cost: Depending on your policy options and other factors, you could pay more in cumulative premiums for multiple policies. Additionally, you could lose out on bundling discounts if your policies are with different providers.
How to Manage Multiple Life Insurance Policies
The best way to choose a life insurance policy is to consider your coverage needs and your financial goals and look for policies that best meet those requirements. For example, if you simply want protection for your dependents who rely on your income, a term policy with coverage ranging from 10 and 30 times your annual income—depending on your needs—might be sufficient. However, if you want a policy that accumulates cash value over time, a whole-life policy might make more sense.
Remember, your insurance policies can be from different insurance companies, but they don't have to be. Regardless, each insurer will likely look at your existing coverage to ensure any new policy you take out doesn't exceed your insurability limit—usually 10 to 30 times your annual income, which varies with your age and by provider.
Of course, having multiple policies means you could have the same or different beneficiaries with each policy. In either case, you and your beneficiaries must clearly understand the policy they are associated with and the process for collecting the death benefit. It could be helpful to keep a comprehensive list of your policies that includes key details such as each policy's number, the insurer's name, contact information and the designated beneficiaries. Then, relay this pertinent information to each beneficiary and explain how they can obtain the death benefit.
Maintain Good Credit When Purchasing Life Insurance
Whether you carry more than one life insurance policy or increase coverage on your current policy, be sure to keep an eye on your credit. Some insurance companies use a credit-based insurance score to help set rates, so you could save on premiums by maintaining good credit. Start by getting your credit report and credit score for free from Experian. Once you understand where your credit stands, you can take the appropriate steps to improve your credit if necessary.