How many life insurance policies can you have?
If you have life insurance, your beneficiaries may be covered upon your death. If you have a spouse, children, or someone who depends on your income, you may need life insurance.
But how much life insurance can you have? Or, to be more specific, how many life insurance policies can you have? The answer might surprise you. Here’s what you need to know if you’re planning to buy multiple life insurance policies.
Advice: Compare life insurance policies and find the best rates with Policygenius.
How many life insurance policies can you have?
There is no fixed limit to the number of life insurance policies an individual can purchase. It is absolutely legal to have multiple policies and is more common than some might think. The catch is that the amount you can be insured for depends on your income – and having one or a hundred policies won’t change that upper limit.
For example, let’s say your annual income warrants up to $ 1 million in life insurance. If you have a $ 500,000 policy with one insurer, another insurer may consider purchasing a separate $ 500,000 policy for you.
The key is that you will need to meet the insurability criteria of the insurance company. As long as you do, they’ll likely be more than happy to accept your business regardless of what other policies you have.
Related: Term life insurance or whole life insurance: which is the best solution?
Why would you want to purchase multiple life insurance policies?
We have established that it is legal and feasible to purchase more than one life insurance policy. But why would you want to put yourself through all the problems? Here are three times that buying multiple policies might make sense.
1. Your coverage needs have changed
Most experts recommend purchasing enough life insurance to cover 10 to 15 times your annual income. (If you want more information on this, check out our guide on how to calculate your life insurance needs). But what if your income has increased significantly since you first purchased your policy? You may be underinsured.
If you need more coverage, you can cancel your existing policy and purchase a new one for the appropriate amount. But it might not be the best option if you’re much older than when you bought your original policy, or if your health has deteriorated.
For example, let’s say you have $ 1 million in coverage and you need $ 1.5 million to hit your 10-15x annual income goal. At your current age and health, it may be cheaper to add a separate $ 500,000 policy than to cancel your $ 1 million policy and purchase a new one for $ 1.5 million. dollars.
Income is not the only variable that can affect your coverage needs. Other life events can increase the amount of life insurance you need, including getting married, buying a house, or having a child.
2. You build a life insurance ladder
With a staggering strategy, you buy multiple policies of different sizes and expiration dates. The goal behind a ladder of life insurance is to save money by paying only the amount of life insurance that you need at each stage of life.
For example, let’s say you’re a 30-year-old married person with a child and a mortgage and you need million dollar life insurance coverage. As a first step, you may want to consider purchasing a 30-year term policy for the full $ 1 million.
But, in reality, you may not need as much protection for 30 years. Your life insurance needs may decrease over time as you increase your savings, pay off your mortgage, and become an empty breeder. Instead, you can build the following life insurance ladder:
- 10-year policy: $ 300,000
- 20-year policy: $ 300,000
- 30-year policy: $ 400,000
With this scale, if you die within the first ten years of purchasing all three policies, you will receive the full $ 1 million (because your beneficiaries can benefit from all three policies). If you die within the first twenty years, your beneficiaries may receive $ 700,000 (combining the benefits of the 20 and 30 year contract). And even after thirty years, you still have life insurance protection of $ 400,000.
Building a life insurance ladder takes more work. But it could also save you a lot of money since you will only be paying for the coverage you need. In fact, Policygenius say that the scale can save some policyholders up to 50% in bonuses.
Read more: Policygenius review: one-stop shop for insurance
3. You want separate coverage for business or long term care needs?
If you are applying for an SBA small business loan, you will need to purchase a life insurance policy that will provide financial protection to the lender. But many business owners want a separate policy from the one they purchased to protect their dependents.
Some are considering purchasing a hybrid life insurance policy that includes long term care protection. But since these fonts tend to be more expensive, you will probably want to purchase them separately from the traditional font that will be used to care for your loved ones.
Related: What is the best life insurance for seniors?
Can buying multiple life insurance policies increase your coverage limits?
Your limit of insurability is the maximum amount of coverage you can claim based on your income for all of your policies. Each insurer is free to set its own limits. But if you’re under 40, your limit will likely be around 25 times your annual income.
All life insurance companies share policyholder information with each other through the Medical Information Office (MIB). For this reason, you will not be able to bypass your insurability limits by purchasing multiple policies.
For example, if you earn $ 50,000 per year, you may have an insurability limit of approximately $ 1.25 million. If you currently have a $ 1 million contract, you may be able to add a new $ 250,000 contract. However, if you already have $ 1.25 million in coverage, it is unlikely that you will be able to purchase a new policy without an increase in income.
Is owning multiple life insurance policies worth it?
As we mentioned before, a laddering strategy can definitely save you a lot of money in bonuses. But you may not need to purchase separate policies to reap the benefits of a ladder.
Ladder Life is a life insurance company that enjoys the benefits of ladder in all of its plans. With a Ladder Life policy, you can increase your coverage if you get a raise. Or you can reduce your coverage if you pay for your house or if your child finishes school. Read our full Ladder review.
However, if you already have a low-cost life insurance policy, it may be a good idea to add a separate policy to close a coverage gap.
It may be a good idea to purchase more than one policy, especially if you are using a laddering strategy, your coverage needs have changed, or if you need separate coverage for business or long-term care. But the insurance limits are cumulative – meaning if your income allows for $ 1 million in coverage, you can’t get $ 2 million in coverage by getting policies from multiple companies.
Related: Your Complete Guide to Life Insurance Riders