Many people know that having a life insurance policy is a smart financial move. Life insurance ensures that your loved ones have a safety net if you pass away suddenly, giving them a way to quickly replace some of your income. Plus, it can make final expenses easier to manage, reducing a significant burden on your family during what’s likely a challenging time. However, many people wonder whether one life insurance policy is enough or if it’s smarter to have more if that’s allowed. With that in mind, here is a look at whether you can have more than one insurance policy, as well as four advantages of having multiple life insurance policies.
Can You Have Multiple Life Insurance Policies?
Having multiple life insurance policies is allowed. Technically, there’s no legal limit to the number of policies a person can have, giving you the ability to secure two, three, or more policies if you deem it necessary.
However, some factors may incidentally limit the amount of coverage you can secure. For example, insurers may have income requirements for policies with specific values. Additionally, an individual company may restrict how much coverage you can get through their company, which would mean you’d have to find another insurer if you want coverage beyond what your current company can offer.
Additionally, every insurer can have its requirements to determine your eligibility for coverage. For instance, your health plays a role, and if an insurer finds any of your current conditions disqualifying, it may prevent you from securing a higher-value policy or additional coverage through other insurers, regardless of your ability to pay the premiums.
4 Advantages of Having Multiple Life Insurance Policies
1. Separate Coverage for Different Beneficiaries
When you have multiple life insurance policies, you can choose a beneficiary for each one. You don’t have to select the same person on all of your policies. As a result, you can effectively have separate coverage for every beneficiary by getting a policy that goes to each one.
In some cases, having separate policies for every beneficiary can simplify estate planning and management after your passing. It’s an effective way to ensure that the selected parties each receive an amount you’ve pre-selected for them, making it a solid path for making sure that your final wishes are followed.
2. Different Types of Policies for Different Needs
There are several types of life insurance policies available. For example, there is term, whole, and universal life. Each of those kinds of plans functions a bit differently, so they’re often the right choice in some situations but not others.
By having multiple life insurance policies, you can select a type of coverage that best suits specific scenarios. For example, you may choose whole or universal life to secure a spouse’s financial future long-term, but go with a term life policy to provide financial support for children, with that policy ending once your kids are adults and carrying for themselves financially. Similarly, you could use term life to provide a financial safety net that could pay off your household’s mortgage but have that policy end if the mortgage is paid off before you pass.
Essentially, you can leverage the various kinds of life insurance to make sure that a variety of situations are covered without having to use one type of policy to handle everything. Often, this can be simpler to manage and may even be more cost-effective than having a single policy do it all.
3. Secure Coverage Beyond What One Policy Can Support
Many life insurance policies have maximum amounts of coverage, usually based on limits set by the insurer. Similarly, life insurance through an employer may have an inherent limit that’s below what you need to ensure the financial security of your household.
As a result, if you need coverage beyond what’s available through your current insurer or employer, you can’t get it through your existing policy. However, by getting a second life insurance policy elsewhere, you can increase your total coverage amount beyond the limit imposed by that one insurer. That allows you to create a group of policies that effectively handle your financial needs, ensuring your family would receive enough to ease their financial burden if you pass away.
4. May Cost Less Than Increasing an Existing Policy
Many people look at increasing their life insurance coverage amount in response to major events. For example, you might want more coverage if you buy a home, have a child, start a business, or take on other significant financial obligations.
While it may seem like the easiest solution is to increase the value of an existing policy, that isn’t always the most cost-effective strategy. When it comes to the price of life insurance, there are times when getting an additional policy costs less than increasing the value of an existing one. While whether that’s the case can vary, it means that some people will experience cost savings by having multiple policies instead of just one high-value policy.
Can you think of any other advantages of having multiple life insurance policies people may want to consider? Are there any drawbacks to multiple life insurance policies that people should also keep in mind? Share your thoughts in the comments below.
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Tamila McDonald is a U.S. Army veteran with 20 years of service, including five years as a military financial advisor. After retiring from the Army, she spent eight years as an AFCPE-certified personal financial advisor for wounded warriors and their families. Now she writes about personal finance and benefits programs for numerous financial websites.
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