Can one person acquire several life insurance policies? The short answer is yes. You can have more than one policy depending on your specific needs and circumstances, all at the same time or separately.
One sure thing is that your needs and financial responsibilities will shift over time as your life progresses. More specifically, your current insurance policy may not meet your expectations tomorrow, particularly when starting a small business or welcoming a new family member.
Keep reading about multiple life insurance policies and why you need to take out more than one policy.
The Reasons to Take Out More Than One Life Insurance Policy
One of the primary reasons that drive an individual to supplement their existing life insurance policy is their evolving needs as life progresses. For instance, a married couple with 1-2 children may require more comprehensive coverage than a newlywed couple.
Another reason to own more than one policy is that most employees are covered under the group life insurance offered by their employer. Still, the coverage is typically terminated if they quit their job. In such a situation, having secondary coverage is considered better than none.
Below are a few reasons why stacking up life insurance policies is a smart idea.
1. You Need Extra Protection for Major Life Events
Life insurance protects you from unexpected and significant changes in your financial situation. It explains why insurance policies are frequently referred to as a “safety net” or “income replacement.” Functionally, the beneficiaries are provided with a lump-sum cash payout after the insured’s death.
When a major life event occurs, the insured is secured against any financial burden they might have to face, especially if they are diagnosed with a critical illness accompanied by a heavy medical expense.
So when is the best time to buy additional policies? Buying a new home, getting married, expecting a child, and launching a business is when you need to re-evaluate your personal needs and decide whether or not you need to buy an additional policy.
2. You Need to Cover Essential Life Expenses
Whether you are single or married, leading a life without insurance is risky. As a result, you might need to top up your current policy with different coverage amounts and term lengths to cover the incurred costs of living expenses.
An intelligent financial planning method called the ladder strategy allows you to make use of multiple policies that expire at different times until you meet your financial goals or pay off debts across different stages of your life. For instance, you can strategically purchase separate term life insurance policies if you expect to score $1 million in coverage:
- Policy 1: A 10-year policy of $500,000
- Policy 2: A 20-year policy of $300,000
- Policy 3: A 30-year policy of $200,000
Theoretically, the combined coverage in the first ten years is $1 million if they all come into action around the same time. Ideally, when you have too many financial obligations on your shoulder earlier in life, such coverage can help you pay off debts, student loans, mortgages, school fees, and medical bills during these years.
As time passes, the coverage shrinks, eventually leaving you with fewer financial concerns since you have most likely used payout benefits from the previously expired policies. At this point, you only keep the most extensive coverage for future essential expenses, such as end-of-life expenses.
It should be noted that implementing the ladder strategy requires a lot of management. Consider hiring a financial advisor if you are interested in this strategy.
3. You Want to Supplement Your Employer-based Life Insurance Policy
Increasing the coverage of your employer-based policy is one of the common reasons why people choose to have more than one life insurance policy.
In contrast to a traditional term life policy, policies from benefits packages offered by most companies and businesses are not as comprehensive as you would expect. Moreover, the policy will be immediately terminated when you are between jobs.
Consequently, stacking up your current group life policy with another policy that fits your personal needs is an excellent move to protect yourself in case of unemployment.
4. You Want to Diminish Possible Risks
Although it’s extremely rare for an insurance company to declare bankruptcy, taking out two or more policies from multiple carriers can offer peace of mind, especially if you are someone who thinks ahead of time and wants to ensure your dependents can live a financially stable life after your passing.
In addition, even if one or two insurance companies go out of business, your beneficiaries are still left solid protection from other policies.
5. You Want to Leave an Inheritance
Taking care of the dependents, such as spouses, children, and parents, is another major factor many people decide to carry more than one policy in their household. If something happens to the insured, extra protection and death benefits from supplemental policies, become a safety net for their loved ones.
How Many Life Insurance Policies Can You Have?
Realistically, it is possible to claim as many policies as you want, either from the same or different providers, depending on your needs. While there is no legal limit to the number of policies you can buy, keep in mind that your net worth, age, liabilities, and premium paying potential are closely tied to how much coverage you can obtain.
Additionally, they will review your total coverage to ensure you are not overinsured. Most importantly, the insurability limit is varied by age and carriers. The standard limits are as follows:
- Adults 40 and younger: coverage is limited to 25 to 35 annual income.
- Adults ages 40 to 50: coverage is limited to 20 to 25 annual income.
- Adults ages 50 to 60: coverage is limited to 10 to 20 annual income.
- Adults ages 60 to 70: coverage is limited to 5 times annual income.
Remember that life insurance should serve as an income replacement, not a tool to accumulate the beneficiaries’ wealth in the event of worst-case scenarios. Otherwise, discussing with professional agents before going over the maximum amount is a good idea.
Types of Life Insurance to Supplement the Current Policy
Generally, term life insurance is the most popular supplemental policy since it is straightforward, inexpensive, and only lasts for a predetermined amount of time, making it a perfect add-on if you pursue the ladder strategy. Other than that, below are a few insurance policies to bundle your existing policy if you wish to cover multiple risks:
- Over 50 plans
- Level-term life insurance
- Family income benefit
- Funeral insurance
- Mortgage life insurance
- Individual life insurance
Alternatives to Multiple Policies
Suppose you are looking to extend your coverage but want to pass the application process. In that case, you can ask your insurance agent to alter or increase your current policy. However, obtaining a whole new policy will typically cost less than increasing the death benefits.
Another alternative to multiple policies is life to add insurance riders. Riders allow you to customize or add minor coverage to your current plan. With these add-ons, you are granted access to the death benefit money when you are alive or use it for other financial goals when needed.
If you have questions about multiple life insurance policies, please get in touch with us to receive a free consultation.
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