Can You Have Multiple Life Insurance Policies?

It's possible to have more than one life insurance policy, even from different companies. Having multiple policies can help you secure enough coverage to meet the needs of your loved ones for as long as they need protection at a price you can afford. This article will help you understand:

1. Reasons to get more than one life insurance policy

2. How term and permanent life insurance policies work

3. Common scenarios for having multiple life insurance policies

4. The difference between multiple life insurance policies and multi-life life insurance

What are the reasons for getting more than one life insurance policy?

The primary reason to buy a life insurance policy is to help provide financial protections for those who may depend on them. If you die, life insurance pays your beneficiary a death benefit as long as premiums are paid.¹ However, there are two reasons why a single policy may not be enough.

• Insurance coverage needs can change over time
  For example, when a couple marries, they may want a certain level of protection. As they have children, they may want to add more, perhaps substantially more. However, 20 years later – when the kids are out on their own, parents may opt for less life insurance coverage that will last longer or for the rest of their lives. (If you're wondering, "How much life insurance do I need?” Guardian provides online tools to help you estimate.)

• One life insurance policy may not be enough
  There are different kinds of life insurance policies with varying features. For example, a term life policy does not provide an option to withdraw cash value while you are still alive. If you need an additional source of funds, say, to buy a home or start a new business, the ability to access its cash value may be a reason to consider a whole life policy.^2,3 (Note: Having multiple life insurance policies is not the same thing as a multi-life policy. See the section at the end of the article to understand the difference.)

How term and permanent life insurance policies work

Life insurance comes in two basic forms: term life and permanent life. The two most common types of permanent life policies are whole life insurance and universal life.⁴ Term life is the most popular form of life insurance, mainly because term life insurance rates are typically lower than whole life insurance rates.

• Term policies cover you for a predetermined period, or "term," typically ranging from 5 to 30 years. Once your policy ends, there is no more protection and no compensation from the life insurance company despite years of making premium payments. You may renew your coverage, but your life insurance rates are typically more expensive because you are older. Your premium increase may be even more substantial if your health has deteriorated since you took out your initial policy.

• Permanent life insurance covers you for your whole life. These life insurance policies also build tax-efficient cash value, which can be used in several ways.⁴ You can borrow against your cash value, use it to make premium payments in later years, or even surrender the policy to help supplement income in retirement. Importantly, your rates are based on your health when you apply for the policy and are not affected by health issues you may experience later in life.

Some common scenarios for having multiple life insurance policies

Several scenarios may lead someone to purchase multiple life insurance policies, either from the same company or different providers, most of which involve needing to extend coverage.

Scenario 1: Supplementing a permanent policy

Permanent insurance premiums can be much more expensive than term life premiums. Some opt for having both a permanent policy and a term policy.

For example, your financial strategy might include having a permanent life insurance policy large enough to cover your spouse's needs in case of your death. This way, you are covered for life, you're building cash value, and your spouse will always have that protection - as long as the policy remains in force. Then, you can add a term policy for extra coverage needed while your children are younger and under your roof. In this case, you might want to take out a cost-effective 20-year term insurance policy while your children are at home, then let the policy lapse at the end of the term.

Also, some parents buy permanent life insurance policies for their children while they are young as an asset with cost-effective premiums. When those children have families of their own, they may want to take out additional insurance to help protect their beneficiaries.

Scenario 2: Work policy supplement

Many employers provide access to cost-effective life insurance along with other benefits, such as disability insurance, as a part of their employee compensation and benefits packages. This group coverage insurance rate is often less expensive than a policy you might buy as an individual.

While workplace life insurance coverage can be a valuable employee benefit, it often may need to be supplemented with other insurance to provide adequate ongoing protection. Here are a few reasons why you may want additional coverage outside of what’s offered by your employer:

The work policy may not be enough to meet your family’s needs, as these amounts are typically limited. Adding another term policy can help make up the difference.

A permanent policy can build tax-efficient cash value and continue to provide guaranteed protection later in life, even help supplement retirement.

If you leave your job, your employer’s policy may not be “portable,” meaning you may not be able to take your coverage with you. If you can keep it, you will likely have to pay a higher rate.

Scenario 3: Temporary supplemental coverage

There may be instances when you need more coverage, but only for a limited amount of time, for example, until your mortgage is paid off. Here's another example: Let's say you and your spouse each have coverage that would replace your contributions to the family budget should one of you pass. However, you decide to stop working for a few years to earn an advanced degree. Your spouse may want to get another term policy to help provide extra financial protection during this life event. Once you are back in the workforce, your spouse can let the extra policy lapse.

Scenario 4: Overlapping terms

Unlike permanent insurance, term life policies have an expiration date. If you want to renew your policy when the term ends, the rate will typically be higher, especially if you are diagnosed with a medical issue such as high blood pressure. It may be more cost-effective to get a new policy before the old one expires.

Here's how this works: If you purchased a 30-year term life policy at age 25, it expires at age 55. You’re currently 40 and still in reasonably good health. Adding a second 30-year term policy now would protect you until age 70, and it will typically be more cost-effective than renewing your first policy at age 55, especially if your health deteriorates. If you don’t need all that coverage, you could choose to drop the original policy.

A variation on this strategy is called “laddering,” which is helpful for those who think their needs will diminish over time.

Here’s how laddering works: After talking with a financial professional, you determine that you need $1 million in coverage while your children are very young, but you’ll need less later. You could decide to buy a $1 million 10-year term policy now,⁵ then renew for a lesser amount later.

But there's a risk – you could be diagnosed with an issue that makes you uninsurable. So instead, you choose to buy three policies: a 10-year $500,000 policy for when the children are young; a 20-year $300,000 term policy that will last until they are young adults; plus a 30-year $200,000 term policy (or permanent Whole Life or Universal Life) that will still be in place after the children are out of the home. Since no one can predict the future, this option helps protect you as your life stage and needs change.

Scenario 5: Significant life events

As you progress through different life stages, your financial responsibilities and priorities are likely to change, making it prudent to consider having more than one life insurance policy. In your early adult years, you might opt for a term life insurance policy to help cover student loans or other debts. As you advance in your career, get married, and possibly have children, a more substantial policy or an additional whole life insurance policy may be necessary to provide financial protection for your family's future. Similarly, later in life, you may choose to acquire another policy to help with estate planning and final expenses or if you opt to start your own business. Having multiple life insurance policies helps ensure that you can tailor coverage to fit your evolving financial needs and obligations.

Scenario 6: Extended coverage with policy riders

Life insurance riders⁶ allow you to add additional coverage to your policy. Most riders must be chosen when you're finalizing your policy; however, you don't have the option to add them later. If you do want to add a specific rider, this often means you'd need to create a new policy.

Consult with a financial professional to better understand your rider options.

Scenario 7: Estate planning

Using a life insurance policy as part of an estate planning strategy involves designating the death benefit to help manage and distribute your assets upon your passing. It may also fund a living trust for your loved ones, which may be a high priority if you have a loved one or dependent with long-term health concerns or disabilities.

Some people use life insurance policies as a vital component of their estate planning efforts. Life insurance allows policyholders to clearly state beneficiaries. Traditional assets can be tied up in probate, and they are open to conflict and debate from family members, but death benefits from life insurance policies are clear and undebatable.

Avoiding potentially lengthy probate processes ensures that your heirs have the necessary funds to cover estate taxes, debts, and other final expenses, alleviating financial stress during an already difficult time.

Moreover, life insurance proceeds are typically income tax-free to beneficiaries, enabling a more efficient transfer of wealth. By setting up an irrevocable life insurance trust (ILIT), you can prevent the death benefit from being included in your taxable estate. This method allows you to control how and when the insurance proceeds are distributed, aligning with your broader estate planning objectives to help protect and provide for your loved ones.

There may also be challenges to having more than one policy

Having more than one life insurance policy may put you at risk of being over insured, which creates a misalignment with your actual needs, and you actually have more coverage than you need. This can cause an unnecessary financial burden as you pay for more premiums. This can detract from your budget, resulting in reduced financial flexibility, and can prevent you from investing those funds into savings, retirement, or paying off debt. In times of financial hardship, it also becomes much more challenging to pay for multiple policies, which could cause a potential policy lapse if the premiums become too burdensome over time.

The two sound similar but are two different concepts.

This article is about one person having multiple life insurance policies — understanding when and if it makes sense for you to take out more than one policy to help protect your loved ones and as your needs change throughout your life.

Multi-life life insurance refers to a single life insurance policy that covers multiple individuals. This type of policy is often used by businesses or families who want to provide coverage for several people under one contract. Key features include:

1. Single Policy: One policy covers multiple lives, simplifying administration and potentially reducing costs.

2. Common in Business Settings: Often used for key person insurance, where multiple key employees are covered, or for executive benefits.

3. Family Coverage: Can be used to cover multiple family members, making it convenient for families who want a unified coverage plan.

You may want to also consider multi-life life insurance as part of your financial strategy. Still, it's important to understand the distinction if you are primarily interested in additional life insurance policies rather than covering additional people. Consult with a financial professional to better understand your life insurance options.

Are multiple policies right for you?

While owning multiple life insurance policies is possible, it may not always suit your needs. As an alternative, if you need more insurance, you may be able to increase the limit of your current policy.

Another consideration is whether to purchase additional policies from the same insurer. You can buy multiple policies from different insurers, although it may be easier to streamline your efforts with one provider for administrative reasons.

Guardian can help you find a nearby financial professional who will take the time to learn about your situation and present you with options that fit your specific needs and concerns.