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Life insurance may offer valuable financial stability for your loved ones in the event that you pass away unexpectedly. There are several different kinds of life insurance that may be available based on your coverage needs, personal health factors, and your budget.
When you buy a life insurance policy, you may get to choose how much coverage you want, which is called the death benefit. But if you want even more protection, you might be wondering, can you have multiple life insurance policies? Some of the more common reasons to pursue multiple life insurance policies might be to extend your coverage amount or to use separate plans toward different goals.
How many life insurance policies can you have?
Technically speaking, you can purchase as many life insurance policies as you want. There are no laws, rules or regulations around the number of policies that one individual can have. Cost is the main parameter to consider when it comes to the feasibility of maintaining numerous policies. As long as you can afford the premiums and your applications are accepted, you can purchase and maintain as many life insurance policies as you wish.
In addition, you can purchase any combination of life insurance policies that you choose. For example, you could purchase two term life insurance policies and one whole life insurance policy. However, there are pros and cons to purchasing more than one policy, and if you choose to buy more than one term policy, there is generally a strategy to doing so.
When is multiple life insurance policies a good idea?
There are several situations where it might make sense to buy multiple life insurance policies. Keep in mind that purchasing multiple policies at once should be strategic and is an approach that may not make sense for everybody. Here are some of the instances when you might decide to buy two or more life insurance policies:
You need more coverage
The first and most common reason to purchase multiple life insurance policies is to get more coverage or a higher death benefit. This is often the case for people who have a low-cost group life insurance policy through their employer but need more coverage than what their employer-sponsored policy can offer. You might choose to buy two term policies, one term and one permanent life insurance policy or some other combination of coverage. Determining how much life insurance you need may help you decide if you need more coverage.
You want coverage for a specific life event
Some people may choose to buy a second or third life insurance policy if they need more coverage for a specific life event. For example, if you are growing your family and want extra financial protection for your kids until they become adults, you might consider buying a second term life insurance policy that can offer that protection for 15 or 20 years. You might also consider buying another policy while you pay off your mortgage or a small business loan. This may offer financial support to cover your debts if you were to die before a loan is paid off.
You have a financial strategy
Having multiple life insurance policies can be part of a larger financial plan, called a ladder strategy. This approach involves purchasing several term life insurance policies with varying term lengths. Over time, the policies expire at different rates as you pay off debts. When the ladder strategy works correctly, you are generally able to pay a lower premium with multiple policies than you are with one high-coverage policy. However, be aware that this approach typically involves complex planning and is generally done best under the guidance of a licensed financial advisor.
Is it okay to apply to multiple insurers at once?
Applying to multiple insurance companies simultaneously for new coverage is not recommended by most insurance experts. When you submit a life insurance application, your request gets recorded in the Medical Information Bureau (MIB), which tells life insurance companies how much coverage you are eligible for. When the MIB shows multiple applications, it can make it look like you are applying for more coverage than you really need, which could ultimately lead to denied coverage.
What are the alternatives to buying multiple life insurance policies?
Purchasing multiple life insurance policies may not be the best option for everyone. As a financial strategy, problems may arise if this plan is not approached correctly. If you need more coverage and are debating a second policy, you may want to consider these alternative options first.
Raise your coverage limit
The easiest way to get more life insurance coverage is usually to simply increase the coverage limit on your existing policy, assuming you have not maxed out your policy’s limit already. Raising your coverage limit will likely increase your premium, but the cost of the rate increase will depend on how much additional coverage you need. You may also be subject to medical underwriting when raising your limit.
If you need more life insurance coverage, you might consider purchasing life insurance riders. Insurance riders are essentially add-on coverages that offer financial protection in specific areas and fill gaps in coverage. Some of the most common life insurance endorsements are long-term care riders, accelerated death benefit riders, accidental death riders and child term riders.