If you have life insurance, your beneficiaries can be covered when you die. If you have a spouse, kids, or anyone that relies upon your income, there’s a chance that you need life insurance.
But how much life insurance can you have? Or, to be more specific, how many life insurance policies can you have? The answer may surprise you. Here’s what you need to know if you’re thinking about buying multiple life insurance policies.
Tip: Compare life insurance policies and find the best rates with Policygenius.
How Many Life Insurance Policies Can You Have?
There is no set limit to the number of life insurance policies that an individual can take out. It’s completely legal to own multiple policies and is more common than some might think. The catch is that how much you can be insured for is based on your income – and having one or one hundred policies won’t change that upper limit.
For example, let’s say that your annual income justifies up to $1 million in life insurance. If you have a $500,000 policy with one insurer, there’s a chance that another insurer would consider writing you a separate $500,000 policy.
The key is that you’ll need to meet the insurance company’s insurability criteria. As long as you do, they’ll probably be more than happy to accept your business — regardless of other policies you may own.
Why Would You Want to Take Out Multiple Life Insurance Policies?
We’ve established that it’s legal and feasible to buy more than one life insurance policy. But why would you want to put yourself through all the trouble? Here are three times that buying multiple policies could make sense.
1. Your Coverage Needs Have Changed
Most experts recommend buying enough life insurance to cover 10-15 times your annual income. (If you want more information on this, check out our guide on how to calculate your life insurance needs). But what if your income has risen dramatically since you first took out your policy? You may be underinsured.
If you need more coverage, you could cancel your existing policy and take out a new one for the appropriate amount. But that might not be the best option if you’re significantly older than when you took out your original policy or your health has deteriorated.
For example, let’s say that you have $1 million in coverage and you need $1.5 million to hit your 10-15 times annual income target. At your current age and health, it may be less expensive to add a separate $500,000 policy than to cancel your $1 million policy and take out a new one for $1.5 million.
Income isn’t the only variable that can affect your coverage needs. Other life events can increase how much life insurance you need, including getting married, buying a house, or having a child.
2. You’re Building a Life Insurance Ladder
With a laddering strategy, you buy multiple policies of varying sizes and maturity dates. The goal behind a life insurance ladder is to save money by only paying for as much life insurance as you need at each stage of life.
For example, let’s say that you’re a married 30-year old with a child and a mortgage and you need $1 million of life insurance coverage. At first, you may consider buying a 30-year term policy for the full $1 million.
But, in reality, you might not need that much protection for a full 30 years. Your life insurance needs may diminish over time as you build up your savings, pay down your home mortgage, and become an empty-nester. Instead, you could build the following life insurance ladder:
- 10-Year Policy: $300,000
- 20-Year Policy: $300,000
- 30-Year Policy: $400,000
With this ladder, if you died within the first ten years of taking out all three policies, you’d receive the full $1 million (because your beneficiaries can get the benefits of all three policies). If you died within the first twenty years, your beneficiaries can receive $700,000 (by combining the 20-and-30-year policy benefits). And even after thirty years, you’d still have $400,000 of life insurance protection.
Building a life insurance ladder takes more work. But it could also save you a lot of money since you’ll only be paying for the coverage you need. In fact, Policygenius says that laddering can save some policyholders up to 50% in premiums.
3. You Want Separate Coverage for Business or Long-Term Care Needs
If you apply for an SBA small business loan, you’ll be required to take out a life insurance policy that will provide financial protection for the lender. But many business owners want a separate policy from the one they’ve purchased to protect their dependents.
Some consider buying a hybrid life insurance policy that includes long-term care protection. But since these policies tend to be more expensive, you’d probably want to buy it separately from the traditional policy that will be used to take care of your loved ones.
Can Buying Multiple Life Insurance Policies Increase Your Coverage Limits?
Your insurability limit is the maximum amount of coverage that you can qualify for based on your income across all your policies. Each insurer is free to set their own limits. But if you’re under 40, your limit will likely be at around 25 times your annual income.
All life insurance companies share policyholder information with each other through the Medical Information Bureau (MIB). Because of this, you won’t be able to get around your insurability limits by buying multiple policies.
For example, if you make $50,000 per year, you may have an approximate insurability limit of $1.25 million. If you currently have a $1 million policy, you may be able to add a new $250,000 policy. However, if you already have $1.25 million of coverage, it’s unlikely that you’ll be able to take out a new policy without an increase in income.
Is Owning Multiple Life Insurance Policies Worth It?
As we’ve already discussed, a laddering strategy can definitely save you a lot of money in premiums. But you may not need to buy separate policies to take advantage of a ladder’s benefits.
Ladder Life is a life insurance company that bakes in the advantages of laddering into all of their plans. With a Ladder Life policy, you can increase your coverage if you get a pay raise. Or you can decrease your coverage if you pay off your house or your child finishes college. Read our full review of Ladder.
However, if you already have an inexpensive life insurance policy in place, it might make sense to add a separate policy to bridge a coverage gap.
It can make sense to take out multiple policies, especially if you employ a laddering strategy, your coverage needs have changed, or you need separate coverage for business or long-term care needs. But insurance limits are cumulative – meaning if your income allows for coverage of $1 million, you can’t get $2 million in coverage by getting policies from multiple companies.