Can You Have Multiple Life Insurance Policies?
Your assets, liabilities and income determine your eligibility to own multiple life insurance policies at once. There is potential financial gain and security to owning multiple policies, however, not everyone will get approved for more than one. There are alternatives available to buying multiple policies, such as purchasing riders or investing in other ways.
How Many Life Insurance Policies Can You Buy?
There is no legal limit to how many life insurance policies you can buy. However, insurance companies do have a cap on the total amount of coverage you can get based on your age and annual income. Life insurance coverage limits vary by company but is usually categorized by age.
For example, if you’re under the age of 40, your coverage will cap at 35 times your annual income. Generally, your maximum coverage will lower every 10 years. So, if you’re between 60 to 70 years old, your maximum coverage will be only five times your annual income.
|Age||Your Annual Income||Coverage Limit Based on Age||Your Max Coverage|
|40 and under||$60,000||35 times your annual income||$2,100,000|
|50 and under||$60,000||25 times your annual income||$1,500,000|
|60 and under||$60,000||20 times your annual income||$1,200,000|
|70 and under||$60,000||5 times your annual income||$300,000|
The coverage limits apply to your total coverage amount for all policies, not just a single policy.
When Should You Buy Multiple Policies?
Many people consider purchasing multiple life insurance policies when they’re in debt, have an important life event, want to ladder policies or their employer’s group life insurance doesn’t provide enough coverage.
It takes strategy, and at times, an insurance agent or broker’s assistance to successfully get ample coverage. Typically, those who seek multiple life insurance policies are looking to achieve specific financial goals.
Multiple life insurance policies can help give additional coverage and financial security to your loved ones. That’s why choosing different payout options for each policy can be beneficial for those looking to cover unexpected expenses while still providing financial support into the future.
For example, you could have a 10-year term policy with a lump-sum payout — a single large payment — paired with a 30-year term policy with installment payments — several smaller payments.
The extra coverage could help ensure your loved ones have enough income to cover your death expenses while offering financial support over a long period of time.
If you’re having a child, getting married or becoming a guardian to new minors, having multiple insurance policies could be an option for you.
In this case, you would base your coverage on how many individuals financially depend on you.
For example, you could have one life insurance plan with enough coverage for you and your partner. If you plan to adopt two new kids in the nearby future, buying a second life insurance policy would help guarantee their future.
Your home is an important asset that you should account for when selecting your life insurance coverage. Multiple life insurance policies may make sense if you are looking for financial protection while you pay off your mortgage.
Having multiple death benefits with your policies ensures that your beneficiaries can cover the mortgage, pay estate taxes and still live comfortably.
Those looking to make a financial plan through life insurance often use the laddering strategy. Laddering is when you buy multiple term life insurance policies that come in lengths of 10, 20 and 30 years. In some cases, this strategy can save you from overspending on premiums.
For example, you could purchase three term life policies. One 10-year policy for $500,000 of coverage, a 20-year policy with $300,000 of coverage and a 30-year policy with $200,000 of coverage.
Your premiums will reduce as each policy ends. The last 10 years, you’d likely be paying roughly one-third of the premium price you paid during the first 10 years. If you choose one policy, you will be paying the full amount until the end of your policy.
Laddering multiple policies gives you the most coverage within the first 10 to 20 years, typically when you have more financial obligations.
Purchasing multiple life insurance policies can be a risk mitigation strategy to protect your loved ones.
If you have debt, a growing family or a new home, make sure these risks are assessed when selecting your coverage. This is where having multiple life insurance policies can play into your favor.
Should You Apply To Several Insurers at Once?
While there is no law against applying to different insurers at the same time, it is not recommended. The overlap could raise questions and delay coverage.
Most life insurance companies utilize the Medical Information Bureau (MIB) as a database to verify your application and possible fraud. So, even if you’re applying to two different life insurance companies, the system can identify your information and whether you are trying to over insure yourself.
If the insurance company utilizes MIB, you can access your underwriting file through their website.
If you feel it’s necessary to sign up for multiple policies at once, it may be easier to buy them from one company rather than multiple. Consider hiring an insurance agent or broker to help determine the best course of action.
Alternatives to Buying Multiple Policies
Buying multiple life insurance policies may not be the best route for everyone. Fortunately, there are alternative options, including adding riders, increasing your current coverage or premiums and exploring other investment opportunities for financial security.
The guaranteed insurability rider, for example, will allow you to change your coverage amounts and skip the medical underwriting process. The spousal rider, on the other hand, pays a death benefit if your spouse passes. There are multiple riders available that may fit your financial needs and avoid the process of buying multiple insurance policies.
If your purpose for purchasing multiple policies is to build wealth, there are other investment vehicles that may be better suited for you.
3 Cited Research Articles
- Gumbinger, K. (2022, April 5). A Brief Guide to Common Mortgage Types. Retrieved from https://www.hsh.com/finance/mortgage/common-mortgage-types.html#:~:text=The%20most%20common%20term%20for,much%20lower%20overall%20interest%20costs
- U.S. Department of Homeland Security. (2021, May 25). Risk Mitigation. Retrieved from https://www.ready.gov/risk-mitigation
- Medical Information Bureau. (n.d.). Request Your MIB Underwriting Services Consumer File. Retrieved from https://www.mib.com/request_your_record.html