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As you try to plan out your life insurance, it might not be possible to handle everything through only one policy — especially if your needs change after you first purchase it. Fortunately, you may not have to limit yourself to just one.
But how many life insurance policies can you have, exactly? Here's what to know — both the pros and cons — about having several different plans.
Can You Have Multiple Life Insurance Policies?
The answer here is yes, you can have multiple life insurance policies. There is no government rule or regulation restricting the number of policies you can buy.
So, just how many life insurance policies can you have? An unlimited amount? In practice, no.
While insurers do not limit the actual number of policies you or your dependents can have, many do set a limit on the maximum possible death benefit, based on your income and total net worth. For example, an insurance company might determine that, based on your income, the maximum coverage you could sign up for is $1 million. Whether you buy to this limit through a single $1 million policy or through ten $100,000 policies does not matter, but you may not be able to buy any additional policies once you reach the coverage maximum.
5 Reasons You Might Buy Multiple Policies
There are a few situations when buying multiple life insurance policies can make sense. Here are five examples to consider:
- Your life insurance needs may change. As time goes by, you might find yourself needing more coverage than your original policy provides — for example, if you have another child. It is possible to buy a new policy each time you want to add coverage (up to your permitted maximum.)
- You can afford another policy. Another reason is that you can afford more coverage than when you first purchased the policy. However, you may not always be able to increase the death benefit of your existing coverage. Someone might want to purchase a new policy each time they get a significant pay raise to keep up with their new salary.
- You want to combine different types of coverage. Since there are different types of life insurance with different features, it could make sense to set up a combination that works in tandem, such as buying one large term policy for temporary needs to go with a permanent policy for long-term needs.
- You want to "ladder" the terms. Term policies have a set expiration date, such as five years or 20 years. If you have life insurance goals with different timelines, you could use multiple policies for each one: a five-year policy to cover your car loan, a 10-year policy for the rest of your mortgage and a 20-year term to protect your children.
- You want to work with multiple insurance companies. Each insurer offers a variety of products with different features. If you can't find all the benefits you want from just one insurer, it could make sense to purchase policies from multiple companies.
Are There Downsides to Having Multiple Policies?
Even though it's possible to have multiple life insurance policies, there are some potential downsides to consider. First, each additional policy creates a little more work. It's another contract to set up, another detail to plan with your heirs and another monthly premium to pay, which increases the chance you might accidentally miss one and lapse your coverage.
In addition, extra policies could increase the cost of your insurance. An insurer may offer a better rate when you buy one large policy rather than multiple small ones. Also, if you buy additional policies later in life, the premiums could be higher than if you purchased it all at once at a younger age.
Last, applying for policies with different insurers at the same time could potentially increase your chance of rejection. Even though the answer to "can you have multiple life insurance policies" is technically "yes," it gets a little more complicated with the application process.
An insurer is able to see, through a national database, if you're applying with another company. So, they may think you're trying to get over-insured and decide to turn down your application. If you do apply for multiple policies, let the agent and insurance company know why — such as you're trying to compare premiums — so they don't think you're trying to get around the coverage limits.
Alternatives to Buying Multiple Policies
Depending on your goals, you may be able to get the same results without purchasing multiple life insurance policies. When you buy your first policy, you may be able to purchase additional benefits through life insurance riders. For example, a guaranteed insurability rider could let you increase the coverage on the same policy without taking a medical exam.
Another rider, called term conversion, could let you turn part or all of your temporary coverage into permanent life insurance. This rider may help you avoid having to apply for a new permanent policy later. Finally, if you have a universal life policy, you may have the option to increase the death benefit rather than buying another policy. However, increases in coverage are subject to underwriting based on health and other factors.
Before making any decisions, consider meeting with a financial representative. They can review your existing coverage and future goals to help you decide whether the best approach is to use multiple life insurance policies or to get the job done through one.