Can You Have More Than One Life Insurance Policy? - Forbes

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You can have more than one life insurance policy. And there actually are a variety of reasons why you might want to have more than one policy.
“Insurance policies are not one-size fits all,” says Erin Ardleigh, founder and president of Dynama Insurance. “You might want to have more than one policy to address more than one need.”
That doesn’t mean, though, that the sky is the limit when it comes to the total amount of coverage you can get. Life insurance companies do have caps. However, those limits might be much higher than you think. So if you’re considering buying additional coverage or just starting to evaluate how much life insurance insurance you need, here’s what to know about buying more than one life insurance policy.
The primary reason to have life insurance is to provide a safety net for those who count on you for financial support. However, it can serve other functions. Plus, you might find that your insurance needs change over time. That’s why, in the following situations, owning more than one life insurance policy can make sense:
• To have an individual policy in addition to group coverage: Supplemental life insurance offered through an employer can be a low-cost (or no-cost) way to get coverage. However, you also should have an individual policy because you likely won’t be able to keep your group life insurance if you leave your job.
• To meet different financial goals: There are two main types of life insurance—term life insurance and permanent life insurance—and they serve different purposes. “A term policy is great for basic income replacement, while the cash value of a permanent policy can help with retirement planning later in life,” says Ryan Pinney, president of Pinney Insurance.
• To create an insurance ladder: Rather than buy one term life policy with a large enough death benefit and long enough term to cover all of your anticipated expenses, you can use a strategy called life insurance laddering to build coverage with more than one policy in different face amounts. “It might be smarter to carry more coverage while expenses are high and less coverage later, when the mortgage is paid off and the kids have left home,” Pinney says.
• To respond to changes in your financial obligations: You might need to buy additional life insurance if your financial situation changes—such as having another child later in life, starting a business or buying a home with a bigger mortgage. “Typically it’s more advantageous to purchase a new policy in addition to one you already have, as opposed to replacing your current life insurance policy altogether,” says Matt Burke, a spokesperson for Policygenius.
• To add long-term care coverage: As you get older, you might want to buy additional life insurance to help cover the cost of long-term care. There are hybrid life insurance products that offer permanent life insurance coverage with long-term care benefits.
Although you can own more than one life insurance policy, you will be limited in the total amount of coverage you can get. That limit is tied, in large part, to your income or net worth.
The amount of coverage you can buy relative to your income varies by age—and can vary from insurer to insurer. Ardleigh says the standard limits are as follows:
• For adults 40 and younger, coverage is limited to 25 to 35 times annual income
• For adults ages 40 to 50, coverage is limited to 20 to 25 times annual income
• For adults ages 50 to 60, coverage is limited to 10 to 20 times annual income
• For adults ages 60 to 70, coverage can be limited to 5 times annual income
For those who want life insurance for estate planning purposes rather than just income replacement, the maximum amount of coverage that can be purchased is usually limited to 80% to 85% of net worth, Ardleigh says.
Those limits are for the total amount of coverage—not per policy. So if you want to buy more than one life insurance policy, insurers will consider how much life insurance coverage you already have when calculating how much coverage you’re eligible for, Ardleigh says.
Be aware that your income isn’t the only factor insurers will consider when deciding how much coverage you qualify to buy. If you have health issues, dangerous hobbies or a job that makes you more of a risk to insure, the total amount you can buy may be lower.
Depending on how much coverage you want to get, you might have to jump through some additional hurdles to get more than one life insurance policy.
You will have to disclose your existing coverage. When you apply for life insurance, you’ll be asked about any existing policies you have. Insurers will verify the information you provide by checking the MIB Group database, which has files on consumers who have applied for life insurance.
They also will interact with reinsurance companies that act as a reporting entity for coverage already provided to an individual by another life insurer. “That’s how insurance companies protect against fraud—and how they know whether you already have coverage or have applied with multiple companies at the same time,” Pinney says. “If the insurer thinks you’re trying to get more coverage than you can justify with income and lifestyle, they may decline your application.”
You might have to provide proof of income and assets. Ardleigh says most insurance companies require applicants to provide financial statements from a third party such as an accountant if you apply for a very large amount of coverage—typically $5 million or more. Even if you’re not applying for millions of dollars’ worth of coverage, you still might have to provide your tax records to justify getting an additional policy. For example, the current annual income of freelancers, contractors and those with seasonal work might not provide an accurate representation of the income that would need to be replaced with life insurance, Pinney says.
You might have additional medical underwriting requirements. Most insurers require applicants who want $5 million or more in coverage to take an electrocardiogram (EKG) test as part of the life insurance medical exam that is required, Ardleigh says. There also could be other medical tests or requirements.
You might have to get multiple policies. If you have a high income and want to get a very large amount of life insurance, you might have to get several policies with multiple companies rather than just one additional policy. That’s because insurers often limit individual policies to $5 million or $10 million to limit their risk, Ardleigh says.
It’s a good idea to work with an independent insurance agent if you want to buy more than one life insurance policy. An independent agent can help you get a better understanding of how much coverage is appropriate for your needs, Burke says. The agent can then help you shop the market and, if necessary, “build a potential case for why an insurer should consider insuring you above the maximum,” he says.
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Cameron Huddleston is an award-winning journalist with nearly 20 years of experience writing about personal finance. She also is the author of Mom and Dad, We Need to Talk: How to Have Essential Conversations With Your Parents About Their Finances. Follow me on Twitter @CHLebedinsky
I’m the Insurance Analyst for Forbes Advisor. I’ve been writing about insurance for consumers for more than 20 years. Insurance intersects with many parts of our lives, yet it’s tough to untangle, and wrong choices can make a financial mess. I’m here to help you make sense of it. I’m especially interested in how data is affecting the price you pay for all insurance types.