You typically have only one insurance policy for your car or your home, but is that also true for life insurance? Can you have more than one life insurance policy? Well, the short answer is yes. In fact, it's not uncommon for people to have multiple life insurance policies.
How many life insurance policies can you have?
While there’s technically no limit on the number of life insurance policies you can have, there is a limit to how much life insurance you can get—in total. Typically, the limit is based on your income and earning potential, which is what the insurance is meant to replace if you were not here tomorrow. There may be more complex uses as well, including for a business or estate planning need.
While you can get multiple life insurance policies from any number of providers, there is something called an insurability limit. Insurability limits depend on your age and are typically a certain multiple of your income. All carriers have their own limits for the total amount of insurance you can get.
How buying multiple life insurance policies works
There are many ways to end up with more than one life insurance policy. For example, you might have a group life insurance policy through work and decide to purchase a term life insurance policy when you get married to provide financial security for your spouse. Or, you might have a whole life insurance policy from when you were a child, but now that you've decided to grow your family, you decide to take out a new, more substantial whole life policy. You might even end up with term life insurance policies of different lengths to cover you during different periods. For example, you may get one policy when you and your spouse buy a house and then another when you have kids.
Alternatives to having multiple life insurance policies
Instead of buying additional policies, you may be able to increase or decrease the amount of coverage you have. For example, an Additional Purchase Benefit (APB) guarantees you the right to purchase additional life insurance coverage during certain time frames or when you experience major life events (such as marriage, adoption or the birth of a child) without needing to prove insurability. This will depend on your policy and provider. You might also choose to add riders to your existing policy to increase coverage in specific circumstances.
Common reasons to have more than one life insurance policy
Life insurance plays a critical role in financial planning that can change over time, and there are multiple ways to structure a policy. This leads many people to use multiple policies for different facets of their financial plan or as their needs change or grow. You may earn a promotion and pay raise at work, prompting you to get additional insurance to cover that possible income loss in the future. Or, you might have or adopt children, in which case you would likely want to amend how your life insurance fits into your estate planning.
To add coverage beyond your existing work life insurance
In many cases, it makes sense to pair your life insurance offered through work with a policy you bought on your own. If you’re offered insurance through work, it can be a great benefit. It's often paid by your company, or the cost is relatively inexpensive. In addition, you typically don’t need any kind of health screening to get coverage, as you would with private insurance.
But insurance through work often isn’t enough coverage for most people (e.g., $50,000 or a multiple of your salary). Additionally, it’s almost always term life insurance, which means it offers only a death benefit. Finally, in most cases, if you leave your job, you will lose the life insurance provided by your employer. For this reason, many people choose to buy private life insurance in addition to their workplace policy, so they always have some coverage even if their job changes.
You have multiple, different needs that can’t be met by just one type of policy
Even when you buy private life insurance, it’s common to have multiple policies to cover different death benefit needs. These needs can range from covering your mortgage payment and saving for your kids to attend college to providing for your family after your death and leaving a legacy to them. People also frequently use a mix of term and permanent life insurance to balance the lower costs of term while also reaping the additional, long-term benefits of a permanent life insurance policy.
With term insurance, you can get the same death benefit as a permanent policy, but at a lower cost. However, while the primary purpose of a permanent policy is the death benefit, it will also accumulate cash value that grows in a tax-advantaged way and is accessible throughout your life.* In addition, permanent life insurance never expires (a term policy does). So long as you pay the premiums to keep the policy going, it will pay a death benefit someday.
Your coverage needs grow over time
When you’re young and starting a family, you may have a large death benefit need—and a tight budget. That makes term life insurance a good fit. But over time, as your income rises and your family grows, you may find it makes sense to add permanent insurance. In many cases, people convert some of their term insurance into permanent policies over time in order to get the added benefits of permanent insurance. This can result in owning multiple life insurance policies.
If you’re a business owner, the thinking is the same. As your business grows, you may find you have additional needs for life insurance to protect your growing enterprise, whether to cover a buy-sell agreement or key person insurance.
When to consider additional life insurance
Often, the arrival of different life milestones may prompt you to reassess or increase your need for life insurance. These could include getting married, having kids, buying a home, supporting aging parents and more.
A financial advisor can help you review your financial needs and recommend the best strategy for adding life insurance to your financial plan. Then he or she can work with you throughout your life to continue to update your insurance as well as the rest of your financial plan as your needs change over time.
* Utilizing the cash value through policy loans, surrenders, or cash withdrawals will reduce the death benefit; and may necessitate greater outlay than anticipated and/or result in an unexpected taxable event.