Can You Have More Than One Life Insurance Policy? How to Decide If You Want Multiple Insurance Policies
What if you could take the protection of your loved ones to the next level?
Many people rely on a great whole life insurance policy to provide for their loved ones after they are gone. There are a variety of policies and limits that you can customize to your needs and the needs of your family, but plenty of people end up wondering if there might be something more they can do.
For example, can you have more than one life insurance policy? If so, how can you decide whether this is the right move or not? Keep reading to discover the answers.
Understanding the Importance of Life Insurance
Before you can further explore the potential benefits of having multiple life insurance policies, it is important to get back to the basics. By understanding the core benefits of this important coverage, you can better decide whether getting even more coverage is the best course of action. With that in mind, here is a brief breakdown of the most important benefits of life insurance coverage.
Providing Money for Your Spouse and Dependents
One of the primary reasons people seek out this insurance in the first place is to help cover family expenses in the event of an unexpected death. For example, the primary earner in the family may want to take out enough coverage to pay the remaining mortgage so their spouse does not lose the house. In many cases, parents will want to take out a policy large enough to cover all the higher education costs of their children, giving them a chance to pursue their educational dreams without taking on excess student debt.
Special Protection in the Event of Major Illness
By themselves, standard policies typically do not cover you if you become disabled or develop a chronic illness. However, it is possible to take out additional riders that can protect yourself and your family. Depending on the carrier and rider in question, it may be possible to use coverage to pay for your premiums or even pay for the cost of your car.
Insurance as an Investment
There are different kinds of policies out there, but a whole life policy will gain value over time. As this happens, you may be able to personally use the growing value to create an emergency fund, supplement your retirement, or otherwise provide cash when you need it the most.
Exploring the Possibilities of Multiple Life Insurance Policies
Can you have multiple insurance policies? The short answer is “yes.” It is entirely possible to take out more than one policy. It typically simplifies things to get all your coverage from the same carrier, but nothing keeps you from shopping around and getting insurance from multiple carriers as needed.
That said, it is possible to reach a point where you can no longer purchase additional coverage. Carriers have an “insurability limit” that keeps you from taking out so much protection that it exceeds a certain amount. That amount is so high (usually 20–30 times your annual salary) that most people can take out several extra policies before they hit the limit.
Why is the limit there in the first place, though? The short answer is that all carriers wish to walk the fine line between helping your beneficiaries cover major costs (such as mortgages and college educations) without turning payouts into an easy method to get rich quickly. Limits are designed to prevent fraud and protect clients who may find themselves in a situation where their life insurance payments are more than their income.
Benefits and Drawbacks of Owning Multiple Life Insurance Policies
Now you know that it is possible to get more than one life insurance policy. Of course, the fact that you can easily do so does not mean this is the best decision for everyone. It is important to review both the benefits and drawbacks of having multiple policies before you decide to get additional coverage.
What Are the Benefits of Having Multiple Policies?
The primary benefit of getting more coverage is that it lets you and your family adapt to different needs as time goes on. What you need when taking out a policy at 30 may be very different than what you need at 45, so it is good to know you can take out another policy that better suits your current situation.
On a related note, it is possible to take out multiple term life policies that are timed to provide life insurance for different major life milestones. For example, you can get a 10-year policy to help cover the final decade of mortgage payments, you can take out a 20-year policy to cover higher education costs for your 5-year-old, and so on. Once the milestone passes (such as paying off the house) and your coverage expires, you will no longer be responsible for paying the monthly premiums.
The final benefit is that getting coverage from multiple carriers allows you to effectively diversify your protection. Chances are that you already diversify your other investments, and once you start treating insurance as one of those investments, diversifying in this way simply makes sense.
What Are the Drawbacks of Having Multiple Policies?
The biggest drawback of having multiple life insurance policies is, of course, the added expense. Even if you get great rates, the cost of those monthly premiums will add up. If you have multiple term policies, you may very well feel like you paid plenty of extra money over time for no real reason once a term expires.
Relatedly, the more policies you have, the more time-intensive paperwork you will have to manage. Good carriers can help streamline this for you, but that does not change the fact that having twice as many policies will always result in twice as much paperwork.
Finally, it is worth considering that life insurance gets naturally more expensive the older you get. Nothing keeps you from taking on additional coverage when you are older, but do not be surprised when the new premiums are much higher than the old ones.
Making the Decision: Factors to Consider
For most people, deciding whether to take out multiple life insurance policies hinges on whether their sudden death would leave family members stuck with a major expense. As detailed above, the most common expenses are mortgages and college education. It is not at all uncommon for someone with an existing policy to take out another when they experience a major life event like buying a house or having a child.
If you do not anticipate that you will be experiencing such changes (for example, your house is paid off and your kids have already graduated college), then it is likely fine to stick with your existing coverage.
Managing Multiple Life Insurance Policies
If you do wish to take out multiple life insurance policies, what is the best way to do so? The most popular option is to take out multiple term life policies and create a “ladder” approach to coverage.
Here is a common example of a ladder approach: Imagine someone with a spouse, two kids, and a mortgage takes out three different term life policies at roughly the same time. One of these is for 10 years, one is for 20 years, and one is for 30 years.
If they die within the first 10 years, each policy pays out, and this should hopefully be enough to pay off the house, pay future college tuition, cover burial expenses, and so on. If they die within the second decade, there will be a smaller payout, but perhaps your mortgage will already be paid off. Your beneficiaries will still be able to use this money for educational expenses or other financial needs.
Should they die in the third decade, only the 30-year policy will pay out. Under the ladder approach, this should be the smallest payout because the house is paid off and the kids have jobs and families of their own. That leaves a smaller amount to help cover your burial expenses and the remaining financial needs of your spouse.
Real-Life Scenarios: When Multiple Policies Make Sense
Outside the details in the ladder approach, there are other real-life scenarios where having multiple life insurance policies makes sense. One common scenario is that you own a small business. In this case, you may want one policy to cover business costs (including loans and operational expenses) and another to protect your family.
Speaking of family, another common scenario is that you may wish to leave an inheritance for your children. In this case, you may want to take out a separate whole life policy in addition to the term coverage you are using to take care of expenses like the mortgage after you pass. Before doing so, make sure you understand the differences between whole life insurance vs. term life insurance.
Find the Best Life Insurance Options for all Scenarios
Now you know the most important details about getting multiple life insurance policies. But do you know where to find a carrier that offers the protection your family deserves?
Here at InsureOne, we know that nothing is more important than your family. If you are ready to give your loved ones a better future, we are always ready for you to get a quote online. Of course, you can also give us a quick call at 800-836-2240. Finally, feel free to come into one of our nearby offices at your earliest convenience.