Can You Have Multiple Life Insurance Policies?

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If you’re wondering if you can have more than one life insurance policy, the answer is simple.

However, there is more than one scenario to consider before you make your purchase.

Here are the two questions you need to ask:

  1. Is it legal to have more than one? (Yes, definitely.)
  2. Does it make financial sense to have a few different policies or better to just lump em all together?

We’ve gone ahead and answered the first. Yes, you absolutely can have more than one.

But does it make cents?

Let’s talk about it.

Your Insurance Needs Change As Your Life Progresses

A common scenario we see is a growing family. Purchasing the initial policy when that first child arrives is very common.

Makes sense.

You are responsible for their well being and want to ensure they are protected now and forever.

But now it’s six years later…

You have three children, just took out a new mortgage on a big house, and are starting to put money in their college funds. You know you need more life insurance now.

There are a couple options:

  1. Try to increase your coverage amount on the original policy
  2. Shop for a new and separate policy

Unless you have a rider which automatically allows for increased coverage on the initial policy, you’ll likely need to submit to new medical underwriting with your original carrier.

It’s been 6 years, they need to know what has changed in your health and do a new risk assessment.

Because of this, it’s always a good idea to shop around and see what other insurance companies are willing to offer.

Every company is different.

Your increased age, changes in health (good or bad), and rate changes at the carriers could mean getting a brand new policy for another $250,000 will save money over adding to the original policy.

Laddering Policies to Anticipate Future Coverage Needs

Life is unpredictable but those who are able to plan ahead, usually come out ahead.

If you can plan for your future needs, do it, of course.

Laddering more than one insurance policy is a way to dial back your coverage over time and save money on premium payments. This is accomplished by using different term lengths.

Here’s what you have to choose from, most commonly:

Fortunately, you do have the ability to buy virtually any number of years, and this is important to know because the lower duration you lock in, the less you’ll pay per month.

Let’s break it down.

Example:

Let’s say you are thinking about a 30-year term policy to make sure your mortgage is paid off in full and your kids are grown up and out of the house.

Your coverage needs may be greater in the early years. The mortgage balance is higher and all three kids are still fully dependent on their parents.

What if you combined two policies so that your coverage decreased in year’s 16-30 when the mortgage balance is lower, and your oldest kid is already out of college?

These two policies could be with the same carrier or different ones, whatever makes sense for your situation.

Look what you could save on premiums:

Term LengthCoveragePremiums PaidSavings
One Policy$63,414
30 Year$1,000,000
Split Policies$45,928$17,486
30 Year$600,000$39,344
15 Year$400,0006,584

Using the Same or Different Carriers to Save Money on Premiums

Let’s say you’ve decided you want to get two separate term policies of different lengths.

Should you split them up with different carriers or just use the same one?

It depends.

Each carrier has different actuarial tables they use to come up with their rates. This means the company who has the most affordable 10-year policy for your age and risk class may NOT be the same company who offers you the cheapest 30-year policy.

It’s definitely worth exploring and comparing.

Diversifying Your Risk Across More Than One Company

It’s extremely difficult for a life insurance company to just go bankrupt and not satisfy future death claims.

The life insurance industry is highly regulated and there are many protections in place to ensure policy owners don’t get screwed.

Things such as state-run guarantee associations who help ensure policies are serviced in the event an insurer becomes insolvent.

But what’s that saying about never saying never?

Some people may feel more secure not having all their eggs in one basket and spreading the risk around.

This is no different than how financial professionals suggest handling investments.

In the highly unlikely event that your first policy can’t be paid on, you’ll have another insurance company and policy to make sure your loved ones get something.

It’s kind of like having insurance on your insurance.

If you’ll sleep sound at night with this peace of mind, then, by all means, look into it.

Combining Permanent with Term Life Insurance

While term and permanent life insurance products both serve the same purpose, they are very different in several ways.

  • Cost
  • Duration of coverage
  • Cash accumulation

Term life covers a specific period of time such as 10, 20, or 30 years.

You’ll need to decide on the term length based on your income replacement, debts, and assumptions about the future.

Term policies are great. But they do end.

When the term is up, your coverage will be considerably more expensive if you need to continue it.

This is because you’ll be older and may have developed health impairments.

To give you an idea:

A 35-year-old female in perfect health will pay about $215/year for a $500,000 term policy that runs for 20 years.

Let’s take a best case scenario and assume she can still qualify for the top health class 20 years later at age 55 (not likely).

To continue her term insurance for another 20 years will be over $1,000/year.

That’s 5 times higher.

This is NOT an attempt to convince you to buy permanent life insurance.

But a multiple policy life insurance strategy that includes both term and permanent may be a good fit for some people.

You can have the cheaper term coverage during your younger years when people typically need more coverage.

Then, have the security of knowing there is a permanent policy in place no matter what for the later years.

This stays in force even if you develop serious health complications which would result in declines on new applications down the road.

This strategy is popular with burial insurance policies. These are small, whole life policies intended to cover any final expenses whether you pass on at age 70 or 110.

Concerns and Legalities Surrounding Multiple Life Insurance Policies

If you hadn’t gathered already, it’s definitely OK to have more than one policy.

Absolutely nothing illegal about it on the surface.

The one caveat here relates to the total amount of life insurance you accumulate. It must make sense for your financial situation.

This is actually no different than if you have one or ten different policies.

For any new application, they will ask you (and have ways to find out on their own) about other life insurance policies you own or are in the process of applying for.

Example:

A person who earns $60,000 year and is single with no dependents will be questioned if they try to take out a policy for two million dollars. It just doesn’t make any sense and will raise red flags.

Expect this person to be offered a lower maximum coverage amount more in line with their needs.

Life insurance carriers also want to make sure you can afford the premiums on their policies or it’s not worth their time.

Significant upfront costs go into placing a policy in force including:

  • Underwriting salaries
  • Medical exams and labwork processing
  • Agent commissions
  • Marketing spend

If they think you are likely to cancel the policy in 3 months because it’s too expensive, they may just decline you right off the bat.

Bottom Line

There are lots of reasons why securing more than one life insurance policy might make sense. Every situation is different so there is no one right answer.

Whether this is your 1st or 10th policy, it makes sense to compare quotes and chat with an independent professional, like us, for help.

Author:

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Ty Stewart

Ty Stewart is the founder of SimpleLifeInsure.com and a life insurance only specialist. He is an expert writer and contributor to several industry-leading websites. He is an independent agent licensed in all 50 states.

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