Nerdy takeaways
- Stacking life insurance policies can help you cover financial obligations during specific seasons of your life.
- The amount of life insurance you can get isn’t unlimited — insurers typically cap coverage based on your income.
- Assess your beneficiaries’ long and short-term financial needs to decide if laddering or buying one larger policy is right for you.
In short, yes, you can have multiple life insurance policies, but insurers may limit the total amount of coverage you can buy. This is because life insurance is primarily designed to replace your income when you die, so you might need to justify a need for more coverage.
While one policy is sufficient for most people, having two or more policies can make sense if you have various coverage goals. Your financial needs both now and in the future should drive the number and type of policies you buy.
» MORE: Who needs life insurance?
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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 life insurance death benefit for individual policies is typically capped 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.
» MORE: Types of life insurance
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 policies lasting a specific number of years..
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:
Life Insurance Ladder Strategy
10-year, $500,000 term life policy.
If you die within the first 10 years, all three policies will pay out, providing your family with a $1 million life insurance death benefit. These funds can help replace your income and pay off large debts like a mortgage while your kids are still at home.
20-year, $300,000 term life policy.
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.
30-year, $200,000 term life policy.
If you die within the third decade, only the third policy remains and your beneficiaries will receive $200,000. By this time, your kids may be financially independent and the smaller life insurance payout can cover any remaining costs like mortgage payments.
Can laddering life insurance save you money?
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 life insurance 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.
» MORE: Life insurance application
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 your family and another to cover business loans or operational costs were you to die unexpectedly.
- You need to cover final expenses. You might consider a separate burial life insurance policy to cover final expenses like funeral costs. These policies are a type of permanent life insurance and pay out a small death benefit regardless of when you die, as long as the premiums are paid.
- You want to leave an inheritance. If you’d like to leave a lump sum to someone no matter when you die, you could look into buying another permanent policy, such as whole life insurance.
- You need more coverage than your employer offers. A group life insurance plan is usually worth a year or two of your salary, which may not be enough to cover your family’s needs if you die early.
Frequently Asked Questions
Is there a limit to how many life insurance policies you can have?
No, but the amount of combined coverage you can get is limited. Life insurance is designed to replace your income, so insurers won’t usually write policies that far exceed your financial needs.
What is the life insurance ladder strategy?
With this strategy, you buy multiple life insurance policies to match specific financial obligations. For example, you could stack a 30-year term policy to pay off your mortgage, a 20-year policy to cover your children’s higher education expenses and a 10-year policy to take care of childcare costs while your kids are young.
Do you need additional life insurance if you have a policy through work?
Employer-sponsored life insurance coverage is a good starting point, but usually only pays out a death benefit worth a year or two of your salary. If you have financial dependents, this might not be enough coverage. Plus, most employer plans aren’t portable. Locking in a rate on an individual life insurance policy means you keep your coverage even if you change jobs.
