Purchasing life insurance is a great way to protect your spouse and children from monetary loss should something happen to you. The payments can help cover debts, living expenses, and medical or final expenses, as well as providing financial security.
But can you have multiple life insurance policies? The short answer is yes. You can have more than one life insurance policy and you can purchase them from the same or different companies. However, insurers may limit the total amount of coverage you can purchase. Typically, this limit is set between 20 to 30 times your annual income.
Here are some reasons that coverage under a single policy may not be adequate for your situation:
- Major life events such as marriage or starting a family
- Addition of more children
- To supplement a policy offered by your employer
- Wanting to have a separate policy to cover final expenses
- Owning a small business
- To leave an inheritance
In addition, there are different types of life insurance policies with varied features, some which provide additional financial benefits that could be useful while you are still living.
Yes, but should you?
Purchasing multiple life insurance policies to cover different needs is referred to as “laddering.” You can purchase 2, 3, or even 5 policies with different term lengths that will expire as you pay down your debts such as a student loan, a mortgage or your child’s college tuition.
Term life insurance is a popular choice for laddering because it’s affordable, you can purchase term policies of different lengths, and it covers your preferred time period. As an example, you could purchase three separate term life insurance policies of different lengths of time and amounts to provide adequate coverage during the years when you need it the most.
However, most people purchase permanent or whole term life insurance as an investment strategy. As implied in its name, this type of policy covers you for the entirety of your life, building in cash value with tax advantages.
You can borrow against the policy’s cash value, use it to make premium payments down the road, or even cash out to supplement your retirement income.
Reviewing your multi-policy strategy
While obtaining multiple life insurance policies may be a good option for additional coverage to insure against a specific debt or as part of a comprehensive financial plan, there are downsides such as the cost of monthly premiums on multiple policies.
You may be better off purchasing one policy and adjusting the amount coverage over time. Will insurers allow you to decrease the coverage and, therefore, pay less within limits? What if a time comes that you wish to increase your life insurance or how does a term conversion rider affect your policy?
Let’s start with a life insurance policy assessment to help you decide whether multiple policies are right for you.