Around half of Americans have a life insurance policy. Financial advisors recommend having life insurance coverage that’s 10 to 15 times the amount of the insured’s annual income.
But additional insurance may be recommended to cover costs such as outstanding debt, children’s college education costs, or lifetime support of a disabled family member. Perhaps it’s no surprise that about one in five people who have insurance think they don’t have enough.
Getting to that life insurance protection point may be made easier by purchasing multiple life insurance policies. How many life insurance policies can a person have? There is no legal limit, and each person has unique life insurance needs, which will influence the number of life insurance policies held. There are also upsides and downsides to buying multiple insurance policies.
Why Have Multiple Insurance Policies?
Time is a big influencer on having multiple life insurance policies. For instance, a financial consumer may still have a whole life insurance policy that was taken out in childhood.
As the policyholder grows up and has a family, they may decide to take out a second life insurance policy to cover those financial dependents.
Or, an existing life insurance policy holder may need additional coverage for specific needs. Consider a homeowner with a family and a home mortgage. The homeowner may need a second life insurance policy to cover the mortgage owed on the home in the event he or she passes away.
Even smaller expenses can trigger the need for an extra life insurance policy. For example, the head of a household might consider buying an extra life insurance policy to cover the cost of funeral expenses, so the grieving family will have one less thing to worry about.
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How Multiple Life Insurance Policies May Work
Since buying a home or starting a family has such a big impact on a family’s finances, adding more life insurance is certainly understandable.
In that context, adding extra life insurance in the form of an additional policy may make good sense. Using a policyholder with a mortgage and a family as an example, here’s how having multiple life insurance policies might work.
Term Life Policy: Enough life insurance to cover the cost of a home mortgage in the event the policyholder passes away.
Let’s say the head of household needs to cover a $300,000 mortgage. They buy a $300,000 term life insurance policy that expires in 30 years, when presumably the mortgage will be paid off.
If, in the event the policyholder dies sometime during those 30 years, the term life insurance policy pays $300,000, which the family can use to pay off the mortgage and remain in the home. If the policyholder is still alive after the 30-year term ends, the term life insurance contract ends with no more premiums owed on the policy, but no death benefit either.
Additional Term Life Policy
The head of household wants to leave his or her family in good financial shape after passing on. That means not only covering the costs of a mortgage, but also household bills, health care expenses, and the cost of college education for the children. A 20-year policy for $200,000 might ensure the family’s ability to cover necessary expenses, should the policyholder die during the policy term.
In the above example, the policyholder “doubles up” by purchasing one term life insurance policy to cover mortgage protection, so the family can continue living in the home without fear of having to cover mortgage costs and a separate term life policy meant to cover basic household and life expenses .
Life Insurance Laddering
Another approach is buying three life insurance policies and possibly paying less than a large single life insurance policy might cost.
The strategy is called “laddering.” Instead of buying one large life insurance policy for $1 million, for example, the policyholder might buy three smaller, term life insurance policies that equal $1 million, each for a different term. For example:
• A 10-year term life policy for $500,000 worth of coverage.
• A 20-year term life policy for $300,000 worth of coverage.
• A 30-year term life policy for $200,000 worth of coverage.
By stacking, or laddering, life insurance policies over different timetables, the policyholder is getting the exact financial coverage he or she needs at different stages of their life.
The laddering concept could give the policyholder some financial leverage with their insurance strategy. Typically, as a policyholder grows older, the need for life insurance declines, as the mortgage is paid down and children are grown and financially responsible for themselves.
Note that each person’s insurance cost will be different based on age, gender, health, hobbies, and other factors, so laddering may not be the right choice for everyone.
Pros and Cons of Having Multiple Life Insurance Policies
A person’s unique coverage needs will influence any decision to expand a current policy, add a new life insurance policy, or simply keep their current life insurance as it currently stands.
Pros:
Adding to a group life policy. Those with group life insurance subsidized by their employers may not have adequate financial protection. Coverage through an employer may not follow the employee, either, so if a person changes jobs, typically that coverage will no longer be in effect. Buying additional coverage could give a policyholder the life insurance protection they need.
Providing extra protection for life stages. Big “life stages” events like buying a home, having children, or launching a business may increase the need for more life insurance. As more value is added to a person’s net worth, the need for adequate life insurance to ensure their family is protected after they’re gone increases. An extra life insurance policy may provide that extra cushion of financial support. Term life insurance places a limit on the policy’s length based on insurance protection needs
Curbing risk. It doesn’t happen often, but insurance companies can go out of business. While an extra life insurance policy might add another layer of financial protection in the event of this worst-case scenario, consumers do have some protection through insurance guaranty associations. These guaranty associations provide benefits to policyholders and beneficiaries of policyholders in the case of an insurance company becoming insolvent. Insurance companies are legally required to join guaranty associations in the states where they do business.
Cons:
Coverage denial. Applying for multiple life insurance policies may signal companies that you’re attempting to purchase more life insurance than you actually need.
Insurance companies can and do share encrypted customer data, including the existence of multiple life insurance applications, via an industry organization known as the Medical Information Bureau (MIB).
Insurance providers rely on the MIB to ensure they’re not providing more life insurance coverage to a consumer than is necessary. Thus, having two or more life insurance applications under consideration by different companies could draw attention and end up in a denial of coverage based on a consumer’s intent to purchase more life insurance coverage than is necessary. Generally, during a life insurance interview, insurance companies will ask about other coverage an applicant already has in force or has pending. This double checking is to make sure a person will not be overinsured. The MIB also helps prevent fraud by proposed insureds because the MIB includes previous denials that could be left off of an application.
More complex record keeping. Multiple policies means multiple payments and more paperwork to keep track of. A missed payment could mean termination of a policy. For people who have a difficult time keeping track of household records and payments, multiple policies may not be a good idea. It can be easier to manage everything if all policies are through the same insurer.
Possible increasing premiums. Want to keep the cost of life insurance in check? Premiums are generally less expensive for young, healthy people. Purchasing one larger policy at a relatively young age may cost less overall.
Alternative to Having Multiple Policies
One possible strategy for maximizing life insurance benefits without taking out multiple policies is the use of insurance riders, which can add benefits to a policy without having to take out a new one. An insurance rider is supplementary coverage to an existing policy.
Some examples of riders are conversion of an addition of long-term care insurance to a basic life policy or accidental death and dismemberment for someone with a particularly dangerous job or hobby.
Policies may include conversion privileges, but riders can extend the amount of time the policyholder can convert. The cost of an insurance rider varies depending on the type of rider and the insurer. Each person’s insurance needs will determine which, if any, rider is necessary, and if the cost is affordable to them.
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The Takeaway
By purchasing multiple life insurance policies, policyholders can have extra coverage that pays out on a specific debt, like a mortgage payment, after the policyholder passes away. Additionally, multiple policies can help consumers get the exact life insurance coverage they need — when they need it most.
If you’re shopping for life insurance, SoFi has partnered with Ladder to offer competitive life insurance policies that are quick to set up and easy to understand. You can apply in just minutes and get an instant decision. As your circumstances change, you can easily change or cancel your policy with no fees and no hassles.
Complete an application and get your quote in just minutes.
Coverage and pricing is subject to eligibility and underwriting criteria.
Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers- for further details see ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.
Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other, SoFi Technologies, Inc. (SoFi) and SoFi Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under LadderlifeTM policies. SoFi is compensated by Ladder for each issued term life policy.
Ladder offers coverage to people who are between the ages of 20 and 60 as of their nearest birthday. Your current age plus the term length cannot exceed 70 years.
All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal advice.
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