Can You Have Multiple Life Insurance Policies?

When your financial status or family situations change, updating your life insurance is a wise idea.
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Can You Have Multiple Life Insurance Policies?

Written by Brian Greenberg

Last updated: November 25th, 2022

Reviewed by Rebecca Thrift

In some cases, buying an additional life insurance policy may be the best solution, but there are other ways to alter or expand your coverage for you to consider.

Can You Have More Than One Life Insurance Policy?

You can own more than one life insurance policy. In some cases, an insurance company may decline to issue an additional policy to someone who is already insured with them. If this happens, nothing prevents you from applying for a policy from a different insurer.

Is There a Limit to How Many Life Insurance Policies You Can Have?

No law or rule limits how many life insurance policies you can have. However, companies may impose limits on the amount of life insurance they will provide for one person.

Each time you apply for life insurance, the insurance company’s underwriting department reviews the application and decides whether to approve it. In many cases, life insurers will cap the total amount of insurance you can purchase up to a multiplier of your salary. For instance, you may be able to purchase up to 20 or 30 times the amount you earn each year.

The reason for the salary cap relates to the purpose of life insurance. Although some people purchase policies as a way to generate wealth, life insurance is meant to replace your income and provide for your loved ones.

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What Are the Benefits of Having Multiple Life Insurance Policies?

In some cases, purchasing multiple life insurance policies is the right choice for people who need to increase their coverage. Some potential benefits of having multiple policies include:

  • Increased death benefit: The biggest benefit of having more than one life insurance policy is that your beneficiaries will receive more money when you die to settle debts and replace your income.
  • Greater cash value: Permanent life insurance policies typically build a cash value over time. Having more than one permanent policy leads to additional money available for you to borrow from or withdraw to cover major expenses.
  • Opportunity to buy from a new insurer: If you’re not completely satisfied with your current insurer, buying a new policy will allow you to work with a different company and potentially get access to different products or additional services.

What Are the Drawbacks of Having More Than One Life Insurance Policy?

When evaluating your life insurance, you should be aware that owning more than one policy does have some downsides. Potential drawbacks include:

  • Increased cost: Purchasing more life insurance means paying additional premiums. In some cases, you may end up paying more for multiple policies than you would for one with a face value equal to the totals of the others.
  • Confusion about payments: Juggling multiple premiums may lead to missed or late payments. If you neglect to pay your policy due to an oversight, the insurer may cancel it.
  • Additional medical exams: Many life insurers require medical exams for underwriting. Each time you buy a new policy, you may need to get an exam. If you develop a chronic condition, your premium rate on a new policy may increase significantly.
  • Complications for beneficiaries: When you pass away, your beneficiaries will need to file claims for every policy you have. Having to fill out multiple paper or online forms means extra complications while grieving your passing.

What Is a Common Reason to Have Multiple Life Insurance Policies?

People may choose to have multiple life insurance policies for many reasons. Some common scenarios where you may benefit from having more than one life insurance policy include:

  • Laddering to decrease coverage with age: Younger people with small children, student loan debt, and mortgages may wish to purchase multiple-term life policies with varying terms. For example, you may buy $20,000 policies for 5, 10, 15, and 20 years. Called laddering, this approach to buying life insurance allows your insurance coverage and premium costs to go down as you pay off debt and your children become financially independent.
  • Protecting the privacy of beneficiaries: Although you can name multiple people as beneficiaries on a single policy, some people prefer to buy separate policies for beneficiaries. This may be because they do not want beneficiaries to know about each other, or they wish to leave one person significantly more than another.
  • Succession planning for a business: Buying a separate life insurance policy and making your small business the beneficiary can ensure there is money to hire your replacement or for your partner to buy out your share.
  • Desire to accumulate cash value: If you only have a term life insurance policy, adding a permanent policy can give you the benefits of owning a policy with cash value.
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What Is an Alternative to Taking Out Multiple Life Insurance Policies?

In some cases, you may be able to modify your current life insurance without having to purchase a new policy. Some alternatives include:

  • Universal term life: These policies often let you increase the size of your death benefit by paying a larger premium.
  • Increasing and decreasing term life: With these policies, the death benefit gradually increases or decreases over the term, so you can get the benefits of a ladder while only owning one policy.
  • Term conversion rider: This add-on to term insurance lets you convert to permanent life insurance, so you can begin building a cash value.
  • Paid-up additions rider: This add-on to whole life insurance accelerates the cash value growth of policies.

Key Takeaways

Buying more than one life insurance policy is often possible. It may be the best option if you need to increase your coverage, wish to begin using insurance as an investment, or want to protect your business as well as your family. Before buying an additional policy, review the terms of your current policy for riders or clauses that will allow you to alter it.

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