You can have multiple life insurance policies for any multitude of reasons; theoretically, you could have an unlimited number of policies.
However, you may become over-insured if you have multiple policies, which means the amount of insurance you have is more than your financial obligations dictate or that you can afford. You may also find it difficult to juggle a large amount of policies. This can be compounded by having policies across multiple insurance companies. Take some careful thought when planning for the optimal amount of life insurance policies to help you meet your goals.
Why Have Multiple Life Insurance Policies?
Life insurance is a coverage that you purchase to provide a death benefit when you pass away. This can help your surviving family cover final expenses, pay down debts, and replace your income for a time. Multiple policies can give you more coverage to handle these costs.
Complement Your Employer-provided Life Insurance Policy
Those with full-time jobs may be offered life insurance through their employer as part of an employee benefits package. This benefit is likely to be free or less expensive than getting your own policy. However, many employer-sponsored insurance policies only cover a small amount of money. Most employer offered life policies are owned by the employer, not the individual. That means if you leave the employer for any reason, you likely cannot keep that current policy.
If nothing else, it can be a good idea to have enough insurance to pay your debts and final expenses. That way, the payments don’t fall to your significant other or children. Additional policies provide you with more coverage and flexibility for your beneficiaries. If you’re the main income earner of your household, having more coverage can ensure your family stays in their home and can maintain their current lifestyle.
Buying additional coverage may require looking outside of your employer’s life insurance options. When looking for an individual life insurance policy, premiums will likely be higher, though you can find much higher death benefits options.
Temporary Overlap To Prevent Lapse in Coverage
It can be a good idea to buy a new life insurance policy if your coverage is going to lapse. For example, employer-sponsored life insurance policies don’t carry over from job to job. If you anticipate a career change, it could be wise to have another policy in place beforehand so you aren’t uninsured, even for a short time. A term life insurance policy could be an option to bridge the time between your old employer-sponsored policy ending and your new employer-sponsored policy kicking in.
In addition, you may decide to change insurers because of customer service, more favorable premiums, or any other reason. Starting your new policy before canceling your existing policy will also prevent a lapse in coverage.
Temporary Overlap To Increase Coverage for a Period of Time
There may be times when you want more insurance for a set amount of years. Major life events, such as marriage or having a child, can be a catalyst for additional insurance as there is now more to protect.
Adding an insurance policy can ensure that your debts can be paid and your loved ones cared for if the need arises. Temporary coverage, such as a 10 to 20-year term insurance policy, can help cover short-term debt, such as if you have a car loan or mortgage with fewer than 20 years left to pay. The short-term policy would be in place to ensure that the death benefit would pay the remaining balance of the debt if you die before it is paid off. In other instances, like expanding your family, you may want to add a permanent insurance policy to protect your spouse or children for the long term in the event of your death.
Purchasing an additional life insurance policy can increase your coverage while keeping your existing policy in place, which could be favorable if your existing policy has a good premium and you have cash value built up in it. Keeping that existing policy active and adding on to it with another policy could be a good option in that case.
Strategic Overlap or Laddering Your Coverage
The strategic overlap or laddering strategy involves buying different types of life insurance at different times in your life to meet your preset goals. For example, you may start with a base of whole life insurance to build cash value that you can access for emergencies while also providing necessary life insurance coverage. If you then have children, you may then purchase a convertible term insurance policy for an increase in coverage for your dependents. This also gives you the flexibility to convert the policy into permanent coverage later if needed.
You may also choose to ladder your insurance in a way where you have a smaller permanent policy and utilize multiple term insurance policies to cover debts you intend to pay off. For example, a 10-year term policy could cover your student debt, and a 30-year policy could cover your mortgage.
The greatest risk to the laddering strategy is losing coverage that you may still want. As you age, insurance becomes more expensive. You may end up paying more to buy a new policy or renew an existing one than if you had purchased a permanent policy to begin with.
What About Joint Policies?
Joint life insurance is a type of life insurance coverage that can protect couples because where an individual policy covers a single person, a joint policy covers two individuals on a single policy. This means if you want coverage for you and your spouse, you can buy two individual policies or one joint policy. There are several different options when considering a joint life policy, such as a first to die policy, a last to die policy, or a combined policy.This type of coverage can be slightly less expensive if you chose an option where there is a single payout for two people.
While a joint policy can be less expensive, there may be downsides. For example, if the first to die option is chosen, a significant downside is that the policy only pays out once for whoever passes away first. The surviving partner may be left uninsured, and if coverage is desired, it can be much more expensive. The surviving partner may also be required to take health exams to get new coverage, and if the surviving partner is much older or has more health issues than when the joint policy was first put in place, getting new coverage can be costly at best and unavailable at worst.
Joint policies can also be complicated to divide in the event of a divorce. If you want a more flexible, tailored insurance experience, you might find it more worthwhile to opt for individual policies. Fortunately, having a joint policy doesn’t prevent you from getting individual policies down the road.
Common Types of Life Insurance Policies
Term vs. Permanent Life Insurance
Term life insurance is a life insurance policy that you can buy for a specific set of years, often 10, 20, or 30 years. After that time period, the policy could expire or renew at a much higher price. Permanent insurance, on the other hand, is coverage that usually stays in place for your entire life as long as you pay premiums.
One major difference is that term insurance tends to be more affordable, while permanent insurance premiums are usually higher. However, permanent life insurance policies are guaranteed to have a payout as long as your policy remains in force. Your term insurance may expire before you ever use it, but permanent insurance stays in force as long as you pay premiums, unless otherwise stated in your policy. Most permanent policies also feature a cash value component, which is money that you can access from your policy while you’re living.
Term life insurance can be beneficial for getting relatively inexpensive coverage to bridge certain gaps and protect specific milestones of your life. Permanent life insurance, on the other hand, works for long-term coverage, as well as building some liquidity through the policy’s cash value component.
Whole vs. Universal Life Insurance
Whole life insurance and universal life insurance are both types of permanent life insurance. The major difference is that whole life insurance has a set premium and death benefit, while universal life insurance offers more flexibility in your premiums and death benefit.
Both policies have a cash value component involved. As you pay premiums, the policy begins to build value known as cash value. However, whole life insurance and universal life insurance may build cash value in slightly different ways.
Whole life insurance policies build cash value by earning a steady, guaranteed interest rate. Life insurance companies can pay dividends from their profits, and you can expect your premium payments to stay level throughout your coverage.
Universal life insurance can also earn dividends from the company or from an indexed account, such as the S&P 500, connected to your policy. With universal life policies, you have the flexibility to change your premiums and death benefit. However, there can be a risk of underfunding your policy as well.
Should You Consider Multiple Life Insurance Policies?
Whether you are looking to supplement your existing coverage, increase your coverage as your income and assets increase, or temporarily increase your life insurance coverage to account for temporary debts or major life events, multiple life insurance policies could be beneficial. However, before committing to more than one policy, consider the potential issues.
Potential Downsides of Multiple Life Insurance Policies
If you begin to amass a large amount of policies, you may be taking on a significant cost because each policy would have its own premiums to be paid.
Another reason you may not want to have multiple policies is due to overinsurance. Some companies may limit the amount of insurance you can purchase depending on your income and needs. They will also take into account existing or pending policies with other companies.
Seeking Life Insurance Policies From Different Insurers
If you have too many policies between too many companies, it may be difficult to keep track of your coverage and premium payments, increasing your risk of missing payments and having your coverage suspended or terminated. Organizational skills are necessary to keep on top of multiple policies.
Applying for Multiple Policies at Once
You may also run into complications if you apply for too many life insurance policies at once, as insurers may be wary of the possibility that you will end up overinsured. Even if you do decide to purchase multiple life insurance policies, it is advisable to commit to one application at a time.
Alternatives to Multiple Life Insurance Policies
Purchasing multiple life insurance policies is not the only way to amend or supplement your current coverage. If you are unsure if a permanent life insurance policy is right for you now, you can purchase a convertible term insurance policy. This allows you to convert some or all of your policy into permanent life insurance in the future.
Talking to your current insurance provider may also unearth options to adjust your existing policy. Keep in mind that you may not be able to change your benefit amount for whole life insurance policies; however, you can add riders to your insurance. Riders are additional policy benefits that you can pay for usually at a lower cost than buying a new policy altogether. Riders may allow you to use paid-up additions to your insurance which purchases additional coverage to keep up with cost-of-living adjustments. You can even have a term insurance rider to tack on additional, temporary coverage.