As you go through the different phases of life, your life insurance needs tend to change. Getting married, taking out a mortgage, and having children are some reasons why you may consider increasing the amount of life insurance you own.
Taking out a life insurance policy can help you leave money behind for your family to maintain their standard of living, for the kids to go to college, and for major debt to be paid off so your survivors won’t have to pay your creditors.
Jump ahead to these sections:
- Are You Allowed to Have More Than One Life Insurance Policy?
- Why You Might Want More Than One Life Insurance Policy
- How Do You Take Out Additional Life Insurance Policies?
- Frequently Asked Questions: Multiple Life Insurance Policies
Can you take out more than one life insurance policy for yourself? How do you do it? Does it have to be with the same company as you already have a policy with? All of these questions, and more, will be answered in this article.
Let’s get started.
Are You Allowed to Have More Than One Life Insurance Policy?
Yes! There is no legal limit to the number of life insurance policies one individual can own. Many people get life insurance through their employer’s group life insurance plan and also have a term life policy or permanent life insurance policy that they own. There are many benefits to be realized from having multiple life insurance policies.
While there’s no limit to the number of policies you can have, you might be denied additional coverage because of the combined amount of the death benefit. In some instances, people have applied for multiple policies with multiple life insurance companies, hoping to get more coverage than they actually need.
Insurance companies have access to how many life insurance policies you’ve applied for, and your health history, through an organization called the Medical Information Bureau (MIB). When you apply for life insurance with a company, they’ll check with the MIB to see how many life insurance policies you’re applying with, what the face amounts are, and when you applied for them.
They do this to protect themselves financially because they don’t want someone to be over-insured to the point that it would be advantageous to the beneficiaries if they died. A financial advisor or independent life insurance agent can help you decide how much life insurance you may need.
Why You Might Want More Than One Life Insurance Policy
Many people enroll in their companies group life insurance plan because their employer pays all or part of the monthly premium. However, many times those policies don’t provide enough coverage that you may actually need.
Even if you already own a life insurance policy separate from your employer’s group life plan, there are situations that make it advantageous to add another policy to your life insurance portfolio. Here are several:
You need more coverage
When you experience major life changes from a growing family, starting a business, or buying a home, your finances can be significantly impacted. Oftentimes, that impact can necessitate the need for an increase in the amount of protection that you have. This might mean buying another life insurance policy instead of increasing the face amount of your current policy.
Sometimes, depending on the amount of new coverage that you need, it may cost you less to take out a new policy rather than increasing the coverage on your existing policy.
You want to mitigate risk
Life insurance companies rarely go out of business, and it’s even rarer for policyholders not to be taken care of by insurance commissioners and fellow insurance companies if it does happen. You may not like the idea of having all of your policies with one company, just to guarantee the future financial well-being of your beneficiaries.
By having policies from multiple life insurance companies, you can then spread that risk across more than one provider. If one does happen to go out of business, you can be at ease knowing that your beneficiaries can still be protected while you work out the details about the coverage you had with the now-defunct life insurance company.
It fits your financial strategy
Financial planners and life insurance agents use various strategies to integrate life insurance into your long-term financial plan. One of these is known as “the ladder strategy,” which involves having you buy multiple term life insurance policies with different term lengths that expire as your debts are paid and reduced.
For example, you could buy three different term policies: 10, 20, and 30-year policies in decreasing amounts. If you buy them at the same time, for the first 10 years, you’ll have the highest combined amount of coverage because all three policies are in force. As your policies expire, your coverage amounts gradually decrease as your debt and number of dependents decrease.
Using the ladder strategy may result in lower premiums for you over the lifetime of multiple policies rather than if you had paid premiums for the life of a single policy with higher coverage. Finding the best life insurance policy for this somewhat complex strategy can best be done with the aid of a financial advisor or life insurance agent.
How Do You Take Out Additional Life Insurance Policies?
As time progresses, you may discover that your coverage isn’t large enough to meet your beneficiary’s needs. There are several options available for you to be sure your coverage is adequate.
1. Convert your term life policy to a permanent policy
With a term policy, you can’t increase the coverage amount. But, if your policy allows it, you can increase the term length by converting that policy to a permanent type of policy, such as a whole life policy or a universal life policy.
Many insurers offer term conversion riders when you purchase a term policy that can be added for an additional premium each month. The rider automatically converts your term policy to a permanent policy at the end of its term. The monthly premiums for the permanent policy will be higher than what you were paying for your term policy, but the coverage will last for the rest of your life.
2. Apply for a new life insurance policy
If your existing term policy doesn’t allow for conversion to a permanent policy, your best option may be to apply for a whole new policy to get the coverage you need. You can stack this policy on top of your first policy using the ladder strategy.
3. Buy supplemental life insurance through your employer
Unlike the base life insurance benefit that your employer pays for, supplemental life insurance is something you will have to pay for and can be done through payroll deduction.
Any life insurance you get through your employer carries the risk that if you leave that employer, your life insurance coverage doesn’t come with you. If your health has changed for the worse, you may not qualify for an individual life insurance policy.
A better option in this situation is to apply for a private term life policy while you’re healthy. You can use it to make up the difference between your life insurance coverage needs and the coverage provided by your employer. A private policy may cost you less than if you had purchased supplemental life insurance at work.
Frequently Asked Questions: Multiple Life Insurance Policies
Hopefully, you now better understand some of the nuances of owning multiple life insurance policies. To top off your knowledge, here are some of the most frequently asked questions when it comes to having more than one policy.
Can you have more than one life insurance policy with the same company?
Absolutely. It’s not the number of policies that you have with one company, it’s all about the total face amount of the policies you have. Insurers will only cover you up to a certain limit, which is based on the information you provided in your application.
Is there a limit on how many life insurance policies you have?
No, there is no limit. You can have as many life insurance policies as you need to meet the financial needs of those you’ll leave behind.
Is there anything I should look out for when buying a second policy?
When you’re shopping for a second life insurance policy, there are three things to keep in mind:
1. Don’t immediately cancel your first policy
Always hold onto your existing policy. Your second policy isn’t in force until you’ve signed the application, your application is approved by the insurer, you’ve paid your premiums, and the policy has an official effective date written on it.
Canceling your original policy means that if you die while the second policy is being processed by the insurance company, your beneficiaries would receive no death benefit from any insurance company.
2. Have your first policy handy when applying for the second policy
When meeting with an agent and applying for a policy, they’re going to ask you for details about your current coverage. You can save time and avoid additional paperwork by having your first policy at your meeting. The insurance industry is heavily regulated, and the insurance company’s underwriter is going to want to make sure you’re not overinsured.
3. Be prepared for costlier premiums
Since it’s probably been several years since you applied for your first policy, the premiums for your new policy are going to be higher since you’re several years older. Policy premiums are partially based on age, and you can factor in about an eight to 10 percent increase every year you get older. If you’ve had changes in your health, that also can adversely impact your premiums.
Taking Out More Than One Life Insurance Policy
Your need for life insurance can vary over time. As a student, life insurance may not have been something you needed, but it became a valuable financial asset when you got married and had your first child. Perhaps a big promotion is on the horizon for you, meaning a big bump in pay and a bigger mortgage, which may also require an increase in your life insurance.
The best way to stay properly protected as your life changes is to meet regularly, at least annually, with a financial advisor or life insurance agent and evaluate what you currently have versus what you now need. It only takes a short amount of time to do and it can provide big benefits for your loved ones.