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In short, yes, you can have multiple life insurance policies, but insurers may limit the total amount of coverage you can buy. You need life insurance if your death would place a financial burden on others. For many people, one policy is enough.
But two or more policies can make sense if you have various coverage goals. Your needs should drive the number and type of policies you buy.
How many life insurance policies can you have?
You can own multiple life insurance policies from the same or different companies. But when you apply, insurers tend to look at any existing coverage you have to make sure the policy you’re buying won’t cause you to exceed your insurability limit. This limit is typically set at 20 to 30 times your annual income.
The insurability limit exists because life insurance is designed to replace your earning power, not to considerably increase the wealth of your beneficiaries. In short, insurers don’t want your death to look too appealing to others.
Buying multiple life insurance policies: How it works
Having more than one life insurance policy is often referred to as laddering. This is when you buy multiple policies to cover different needs. Term life insurance is often used for laddering as it’s cheaper than permanent life and you can buy different term lengths.
For example, say you’re the breadwinner and want to cover your income, your mortgage payments and your kids’ college debt. Instead of buying a $1 million life insurance policy, you could buy three term policies of different lengths and amounts to match each need:
A 10-year, $500,000 term life policy.
A 20-year, $300,000 term life policy.
A 30-year, $200,000 term life policy.
If you die within the first 10 years, all three policies will pay out, providing your family with a $1 million death benefit. These funds can help replace your income and pay off large debts like a mortgage while your kids are still at home.
If you die within the second decade, the first policy has expired but the other two have not, and your family will receive $500,000. The payout can help cover college costs or living expenses for anyone who still relies on your income.
If you die within the third decade, only the third policy remains in force, and your beneficiaries will receive $200,000. By this time, your financial position may have reduced how much life insurance you need. Your kids may be financially independent, and the smaller life insurance payout can cover any remaining costs like mortgage payments.
This laddering strategy can save you money if you know your coverage needs won’t change. For example, if a 30-year-old in excellent health bought the above three policies, they’d end up paying a total of $10,470 in premiums after 30 years, according to Quotacy, a brokerage firm. To compare, if the same applicant bought one 30-year policy with $1 million of coverage, they’d end up paying $16,260 after 30 years.
However, if your coverage needs aren't as straightforward or predictable, you may be better off buying one policy and adjusting your coverage over time. Many insurers will let you decrease the coverage and pay less, within limits. You can also buy more coverage if your needs increase, but you may have to complete a life insurance medical exam or answer questions about your health to do so.
Why you may need more than one life insurance policy
Here are some examples of when you may want to buy more than one policy.
You own a small business. You may want a term policy to take care of the family and another to cover business loans or operational costs were you to die unexpectedly.
You want to leave an inheritance. If you want to leave a lump sum to someone no matter when you die, you may want a separate permanent policy, such as whole life insurance.