One of the most common questions we get from our customers is, Can you have more than one life insurance policy?
The simple answer to this question is yes. The full answer, however, is a bit more nuanced.
There are no restrictions that prohibit you from obtaining multiple life insurance policies. In fact, it’s common for working Americans to have a group policy from their employer and an individual, private policy.
How Many Life Insurance Policies Can You Have?
Generally, there is no rule on how many policies a person can have. Nonetheless, a life insurance company can deem you “overinsured” based on your HLV. Your HLV, or human life value, dictates how much life insurance someone can obtain based on their working income, current age, and retirement age.
In other words, insurance companies can deny additional coverage if they believe you already have sufficient life insurance. Nearly all insurance companies pull information and records from the same database, which means you can’t circumvent denial by applying to another carrier.
Do you have to get multiple life insurance policies to increase your coverage?
Not necessarily. Most life insurance companies want to keep their customers, so they may offer to sell you an insurance rider to enhance your current coverage. Common life insurance riders include accidental death riders, return of premium riders, and critical illness insurance.
Riders aren’t your only option if you want to increase your coverage. Depending on the policy itself, you may be able to simply increase coverage of your current plan, replace it with a new one, or convert it to an entirely different type of life insurance (for instance, upgrading your term life policy to a whole life policy).
When does it make sense to have two life insurance policies?
Many people with two separate life insurance policies obtain coverage both privately and through their employers. However, there are two other situations where you may want to purchase more than one policy.
The first is if you have a permanent life insurance policy, such as whole life or indexed universal life, since these policies are used for purposes beyond just the death benefit. Suppose you want to use the cash value of the policy for retirement or business capital. In this case, it makes sense to minimize the death benefit to reduce the premiums. Obtaining a less expensive term policy can then supplement the lower death benefit of your permanent life insurance policy, giving you the best of both worlds.
Alternatively, you may want to use a strategy called “laddering.” Laddering is when an overlapping life insurance policy is purchased before the previous one expires. For example, suppose you bought an affordable 20-year term policy when you were 30. When this policy expires, you’ll be 50 and may be less healthy than you were at 20. In general, aging and potential health issues raise the cost of term life premiums. So, to avoid these higher premiums, you can buy an additional 30-year policy at age 40. The lower age and probability of better health will both provide lower premiums and life insurance coverage until you’re 70.
Is having multiple life insurance policies right for you?
Life is dynamic and you most likely will experience significant changes as you age – such as getting married, having children, or earning more income. Big life changes are indications of times when you need to review and possibly reevaluate your insurance needs.
Life is also complex, and there can be several instances where having one or more life insurance policies may or may not be beneficial.
Pros and Cons of Having Multiple Life Insurance Policies
Pros:
- It can be a convenient way to increase your total coverage.
- You may get a competitive rate from a different carrier.
- If you purchase other policies while you’re young and in good health, life insurance companies will offer a lower price (i.e., laddering technique).
- Additional policies can serve as supplementary coverage to permanent options.
Cons:
- You’ll have to manage different policy terms and billing schedules if you’ve purchased life insurance from multiple carriers.
- You might get too much coverage and overspend on policies.
- The insurance companies might deny your application if they believe you are overinsured.
- Your premiums might be higher if you wait until later in life to buy additional policies.
If you’d like to find out how much coverage you need or if another policy is right for you, please let our Principled Life insurance brokers help. We work hard to ensure that everyone is qualified for adequate, affordable coverage. Give us a call today to discuss your life insurance options.
