One of the most important steps you can take for your family’s security is to take out a life insurance policy. While planning for death can be depressing, not planning for it can leave your family in the lurch if you develop a terminal illness or are involved in a fatal accident.
But is one life insurance policy enough? Can you have more than one life insurance policy? And what are the benefits to having two or more life insurance policies? Read on to learn more.
Can you have multiple life insurance policies?
You can have multiple life insurance policies, but that doesn’t mean you necessarily need multiple policies.
Many people sign up for a life insurance policy through their employer, who may subsidize some or all of the policy. But an employer-sponsored life insurance policy may not give you as much coverage as you need to help replace your salary, debts, and other expenses if you die. Too little coverage means that your dependents will need to find another way to pay for their living expenses or to pay off your debts, and that can leave them in a tough spot financially.
There are a few things you’ll need to consider in order to determine how much life insurance coverage you need:
- Think about how many years your family will need financial support after you die, and multiply your income by that number (will be at least 10, but likely more).
- Calculate how much money you would need to pay off your mortgage in full.
- Determine your other debts and final expenses, such as funeral costs.
- Estimate how much it’ll cost to send your children to college.
- Estimate how much you will need to spend on childcare if you currently have a stay-at-home spouse who will need to go back to work if you die.
Once you’ve determined how much money your family will need to cover all these expenses, you can estimate how much life insurance coverage you should have. If your current coverage falls below this number, you may need to take out additional policies in order to meet that minimum coverage number.
How many life insurance policies can you have?
While there isn’t a limit on how many policies you can have, that doesn’t mean you can take out more than two or three without running into some hurdles.
That’s because, while there isn’t a limit on the number of policies you can have, there is a limit on how much total coverage you can have. And unless you are filthy rich, it’s likely you’ll hit that limit with just one or two policies. And yes, you will need to disclose any existing policies when applying for a new life insurance policy.
Limits on the amount of life insurance coverage you can have
As previously mentioned, there is a limit on how much life insurance coverage you can have. That limit depends on your income, net worth, and age, so it’s not the same from person to person. Forbes reports that the limits for coverage are as follows:
- 25 to 35 times annual income for adults 40 and younger
- 20 to 25 times annual income for adults age 40 to 50
- 10 to 20 times annual income for adults age 50-60
- 5 times annual income for adults age 60-70
If you try to take out life insurance coverage over this limit, you may be denied that coverage.
Reasons to have multiple life insurance policies
There are several reasons why it might make sense for you to have two or more life insurance policies, including the following.
To have a separate policy from your employer-sponsored one
You may have a life insurance policy through your employer, but if you leave or lose your job, that policy probably won’t be effective anymore. Having an individual policy that’s not affiliated with your employer means you’ll have coverage even if you are fired or leave for a new job.
To have more than one type of policy
There are two different types of life insurance policy: term and whole life. Term life insurance has an end date and lower premiums, and most people choose this type of policy to help provide for their family if they die prematurely. But you might also want to have a whole life insurance policy if it makes sense for you. Premiums for whole life policies are much higher than they are for term policies, but a whole life policy can help with other things in the future, such as retirement planning or long-term care.
To cover an increase in living expenses
If you take out your initial life insurance policy when you’re young, chances are that the coverage won’t be enough to cover the living expenses you accrue as you get older. You might buy a bigger house with a higher mortgage payment. You might get married and have children. You might start a business. Rather than making amendments to an existing life insurance policy, it makes sense to purchase a new policy that can help cover these expenses when you die.
To pay for long-term care when you’re older
Some life insurance policies offer long-term care benefits in addition to life insurance coverage. As you get older and become more likely to need long-term care, this type of policy can help pay for the care if and when you need it.
To create an “insurance ladder”
Rather than one policy that covers all your expenses, you can create a ladder strategy where you purchase several different life insurance policies with different term dates. This means you’ll have more coverage when you’re younger and have more living expenses (such as house payments and childcare), and that coverage will taper off when your kids move out and your mortgage is paid off. This strategy can save you money on insurance premiums over time by making sure you’re not overpaying for coverage you don’t need.
Alternatives to buying multiple life insurance policies
If you don’t want to have several different life insurance policies, there are several options to help you maximize your coverage with just one policy.
Increasing your coverage
Depending on your insurance provider, you may be able to increase your coverage after a major life event such as marriage or the birth of a child. Make sure you ask your insurance provider if this is an option before starting to look around for additional policies.
Riders
A life insurance rider is essentially an addition or addendum to your existing life insurance policy. If you get married, a spousal rider adds a spousal death benefit to your policy. Similarly, if you have a child, you can add a child insurance rider that can help cover funeral expenses if your child dies. Both spousal and child insurance riders will add to your premium, though you’ll typically pay less than you would if you took out separate policies for your spouse and child(ren).
Is having more than one life insurance policy worth it?
Depending on your living expenses, having more than one life insurance policy can be a smart move. If you’re considering taking out multiple policies, it’s a good idea to speak to an insurance broker who can advise you on the best course of action.