Life insurance is a fantastic resource, recommended by virtually every financial advisor to protect policyholders in the case of their untimely passing. As such, most individuals who are married or have kids purchase policies as soon as possible – preferably before age 35 according to life insurance agents.
However, as life insurance is designed to exist over the course of the policyholder’s lifetime, it is unique in that it follows an individual through decades of their life, and ideally does not ever lapse (you may move to New York City and forgo car insurance, but you’ll never be without your life). As such, many factors – such as the financial situation of a policyholder, their needs and desired insurance coverage – can and likely will change throughout the course of their policy. As they develop different needs, they may feel themselves wanting to adjust their life insurance policy’s death benefit, its premium payments or both.
While the relatively new variable life insurance does allow for flexibility in premiums and coverage during the lifetime of the contract, most existing term life policies have what’s known as level premiums, meaning their premiums are the same from the first month all the way through the end of the term. Which means if the policy holder wishes to update their policy, one of their best options is to purchase multiple life insurance policies to increase their flexibility and life insurance coverage.
In short, it is legal and possible to purchase multiple life insurance policies, though there are restrictions. Determining whether you wish to purchase an additional policy depends on your level of desired insurance coverage, and the terms of your current life insurance policy. We outline a few of the reasons why individuals may desire multiple life insurance policies below.
Laddering Multiple Term Life Policies To Save Money
This example makes sense for individuals who have a desired death benefit over the long term, but who wish to increase their premium payments as they age. An example would be a 25 year old who wants $2M in coverage for a 30 year term, but is currently saddled with debt and predicts they will be more able to pay higher policy premiums as their salary increases in the future.
In this case, they may purchase 3 term policies, with different terms and death benefits, that will all kick in before the 30 year mark. This could look something like:
- A $500k policy for 30 years (purchased today)
- A $500k policy for 20 years (purchased 10 years in)
- A $1M policy for 10 years (purchased 10 years in)
This way the individual still has their desired $2M in coverage, while escalating their costs as their pay – and the financial needs of their loved ones – increases. Laddering life insurance policies also grants flexibility, should for some reason the original $500k policy suffice.
Laddering is typically done with term life insurance policies, as with variable or universal life insurance, a person may increase their premiums and death benefit while the contract is still active. However premium payments for term life insurance always less than universal life policies, which is why multiple term policies can still make sense for an individual who has less liquidity in the short term.
Adding Permanent Life Insurance To An Existing Term Life Policy
Another use case people see for purchasing multiple policies, is when they have purchased a term life policy early in life, and wish to supplement it with a permanent life insurance policy, which has a cash value component. This is typically done when individuals desire to have the bulk of their payout during the period when their kids are under 18, but wish to have a guaranteed smaller amount left to their family no matter when they pass (to cover final expenses and funeral costs).
The reason for this is best illustrated through an example. Say you are a 20 year old purchasing a 30-year term life policy, but when you reach age 45 you realize you want additional coverage for your kids. After all, with rising college tuition and housing costs, you may find your original life insurance policy isn’t nearly as adequate as you originally thought. You could wait 5 years for the policy to lapse and get a new larger policy, but life insurance increases the older an individual gets, and that waiting time will cost you. Additionally, the cash surrender value of a term policy tends to be small, so many people prefer to have the overlapping double coverage, rather than lose their term life policy.
Getting a universal or whole life insurance policy in addition to a term life insurance policy, allows you to have the maximum coverage during the overlapping periods, and then taper off your coverage as you get older. Many people prefer this as it allows them to pay less premiums at the beginning and end of their life, and pay the most for multiple policies during the middle of their life, when their family needs it most, and they are able to afford it.
How Many Life Insurance Policies Can You Have On One Person?
While there isn’t a technical limit to the number of policies an individual can have, there are fiduciary responsibilities insurance agents have to prevent one from buying a suspicious amount of coverage. You’ll have difficulty purchasing a policy that’s more than 30x your current salary, an in most cases individuals are rarely getting more than 2 or 3 concurrent policies.
While getting multiple life insurance policies makes sense in certain cases, this is always over time, and it’s not recommended you apply for multiple policies at the same time. This is because when you apply for a policy, all your medical records are submitted by your life insurance company to the Medical Information Bureau (MIB), and applying for multiple policies at once can make it look like you’re trying to cheat the system. Even if you are approved, it would require double the medical exams, and generally doesn’t really provide any additional benefit.
Should I Buy An Additional Policy?
If you’re still confused about whether you need another life insurance policy, the main questions to ask yourself are: do you need more coverage or do you wish to stagger your policies over time? If you feel comfortable with the death benefit of your policy, and don’t envision needing more during your term, you probably don’t need a second policy. Additionally, if you already have a permanent life insurance policy, you likely have options to increase your premiums and coverage, and it’s best to discuss your options with your life insurance agent before moving forward with an additional policy.