How Many Life Insurance Policies Can You Have?

Is it a good idea, or even legal, to own more than one life insurance policy? The answer to both questions is yes—no law limits how many life insurance policies you can own. And it can be smart financial planning to have multiple life insurance policies.

Let’s say your employer provides you with group life insurance for free. But they only pay a death benefit of $25,000. 

That small payout from your employer might be enough if you’re a college student. But it won't protect a growing family with a mortgage. One rule of thumb is to have life insurance that covers 10 times your annual salary.

You might also want different life insurance policies for different seasons of your life. In a move called “laddering,” you can buy one term life insurance policy for the peak years when your family needs it most, and a cheaper policy for the empty nest years.

Benefit Limits on Life Insurance Policies

While you can buy multiple policies without raising eyebrows, there is a limit to the amount of coverage you can buy. 

Insurance companies keep track of the combined value of your policies through a service called the MIB (Medical Information Bureau). The aim is to protect themselves from fraud.

You might get some pointed questions if you try to insure yourself for 20 or 30 times your income, for instance.

If the coverage amount is too high, they may worry about whether you can afford the premiums. You should apply for a reasonable amount of benefits given your income and assets. 

Beefing Up an Employer-Sponsored Plan

About half of Americans have life insurance through their employer. It's pretty easy to settle for a free group plan. But this low-key approach isn’t for everyone:

• If you change jobs, you may lose your employee life insurance policy. Mobile Americans switch jobs a lot—more often than they change cars, in fact. The 

   is only four years, while most Americans own a car for around 

  .  

• The most common reason to buy an extra term life policy is in case the family breadwinner dies. If you work for a small company, they may pay a lump sum that won’t cover all your expenses. Even if you work for a large employer, they may pay only two to three times your salary. 

• That’s one reason why one in five Americans who have life insurance say it doesn’t 

  . Even more concerning, in one study 40% of adults said they didn't

   or weren't sure if they did nor not. Yet 35% said worrying about what would happen to their family if they died was a top concern.

The Big-Ticket Years  

Term life insurance can cover the years of big-ticket costs like raising kids, saving for college, and paying a mortgage. The benefit from your employer’s group plan may be too skimpy to cover those bases.

When you buy a second policy, you don’t have to worry about losing coverage if you leave your job. If you do leave, and your new job doesn’t offer a life insurance benefit, you could be in a financial bind. This is especially true if you’re older or your health makes it hard to qualify.

The DIME Approach

Not every expert believes that you need life insurance that’s 10 times your salary. Some advocate the DIME approach instead. This looks at four areas you should consider before deciding on the coverage amount:

1. Debt and final expenses:

    Add up debts and what you think your funeral expenses might be.

2. Income:

    Multiply your annual income by how many years your family might need support.

3. Mortgage:

    Add in the amount it’ll cost to pay off your mortgage.

4. Education

   : Include any schooling costs for your kids.

An even faster way is to use an online life insurance calculator that weighs your income and expenses to estimate the right amount of life insurance. 

Life Insurance Is a Good Investment

If you’re worried it’s too expensive to add a second life insurance policy to your portfolio, think again. Studies show that many people, especially millennials, greatly overestimate the cost of life insurance:

• Around 44 percent of millennials think life insurance costs 

   than it actually does.  

• A healthy 30-year-old might pay as low as $13 per month for a $250,000 term life insurance policy.

• Coverage amounts might seem high when you’re young, but your income and expenses should rise over time. A second policy is a good cushion to fall back on as assets increase.  

Learn more about how to get the best investment value from whole life insurance.

The Laddering Strategy

“Laddering” is long-term planning that gives you the most insurance when you need it most. The peak years for needing life insurance are the 20 years following a marriage or birth of a child.

These are the years of greater financial burdens like debt, a mortgage, schooling costs, and purchases that add up when you’re raising children. 

With a term life policy, you can get extra coverage during these years. The policy will expire when your needs aren’t as great. Once the kids fly from the nest, you may want a smaller policy to cover the later, more carefree years.

For instance, instead of a 30-year policy that costs $1.5 million, you could buy three cheaper life insurance policies:

• A 10-year $500,000 policy for the peak years.

• A 20-year policy of $300,000.

• A 30-year policy of $200,000.

There are pros and cons to this approach:

Pro: If you’re pretty sure your financial needs will go down over time, it’ll save you money.

Con: If your future is unpredictable, you might want a single, blanket policy.

Separate Policies for Other Goals

Owning multiple life policies is a good idea under special circumstances:

• If you’re young and have life insurance through work, you might want a term policy to cover big student loan debts that a parent cosigned. Your parents won’t be responsible for your debt if you die, so you only need this if you have a co-signer you want to protect. If you’re in your 20s and healthy, this type of plan will be bargain-basement cheap.

• If you’re a small business owner, you might need one policy to cover your business equipment and loans, and another policy to shield your family.

• If you want to leave income for your family no matter when you die, a permanent policy like whole life is a key part of estate planning. You can still take out a term life policy to cover more immediate financial needs.

• You might choose a whole life policy to cover your mortgage and a term life policy for funeral expenses.   

Alternatives to Multiple Policies

Some people want to buy more than one policy while they’re young and rates are low. 

But if you don’t want to go this route, you can add an insurance rider that lets you change your coverage when major life events alter the big picture. Instead of buying two policies, you can just increase the coverage on the policy you have as you get older.

Some riders let you buy more insurance as you age without needing another medical exam. These are called “guaranteed insurability riders.” 

It costs more to have a GI rider. It might be worth it if you think your health will change or you have a history of medical issues. You can buy more insurance every few years on the anniversary of your original policy.

Some plans will let you boost coverage once you get married or have children. This is a good idea if you’re single or your budget is tight, but you want the option to buy more coverage later. 

Converting Your Term Policies into Whole Life

If you’ve put all your eggs into the term life basket, that doesn’t mean you can’t decide to convert to whole life later.

A term life policy is temporary, with an expiration date of 10, 20, or 30 years.  Whole life is permanent life insurance and you're covered as long as you live. Whole life also has cash value, so it’s an investment that will reap financial rewards. It’s a good plan to have as you near retirement age.

Most term life plans are convertible to whole life, although many people don’t realize this. They might just let the policy lapse or go bare without coverage.

A policy that’s convertible has a time limit. Often, you have to convert by age 65, depending on the policy. Premiums go up as you age, so it’s best to convert as early as you can swing it. You can convert the whole policy at once or in installments over time. 

Life insurance is a complex issue. But you don’t have to meet with an insurance agent face-to-face to figure it out. Click on PolicyScout to compare a wide range of life insurance policies instantly. And if you need to speak to a real person, just call one of our customer service agents who are always there to help.