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Can I Buy More Than One Life Insurance Policy?

Shopping for the perfect online life insurance policy can be overwhelming, but with Quotacy at your side, it doesn’t have to be. Let us help you consider your options when you need to fill gaps in coverage.

Here we highlight when it might be beneficial to purchase multiple life insurance policies online. This is called laddering life insurance policies and it’s a great strategy to save money without having to compromise on coverage.

Can I Own Multiple Life Insurance Policies?

For most people, your financial situation and coverage needs change as life goes on. This is why it’s common to own different life insurance policies with different term lengths or coverage amounts.

Most young families have the greatest financial need the first twenty or so years after starting a family. With the majority of earned income going toward a mortgage/rent and raising children, let’s take a look at why buying two policies would be beneficial in this scenario.

Example

You just had your first child and to fit your growing family, you bought a new house. In this scenario, there are two financial responsibilities that you would want to make sure are covered:

  1. Mortgage for your home
  2. Future expenses for your child

Policy 1: 30-year term for $250,000

Your mortgage is a 30-year fixed-rate loan for $250,000. You can buy a term life insurance policy to match your mortgage so, if you were to die suddenly, your family could pay off the mortgage and wouldn’t have to sell the house.

If you live a long, happy life, the coverage is designed to drop off once the mortgage loan is paid.

Policy 2: 20-year term for $250,000

To supplement the policy that will cover your mortgage, a second policy could be used to make sure your spouse is able to take care of everyday expenses like food, clothing, and childcare. This will give them the much-needed funds for the years your children are not financially independent.

Together, these policies would provide financial support to your loved ones should you pass away during their most financially vulnerable years.

Purchasing multiple life insurance policies with different amounts and term lengths is a great strategy known as laddering.

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How Much Life Insurance Can I Buy When Laddering Policies?

Life insurance companies do not have restrictions when it comes to buying multiple policies—as long as you’re eligible and approved for the coverage.

For example, a single, childless person making $50,000 a year cannot justify buying multiple million-dollar life insurance policies on themselves for two reasons:

  1. The insurance company would be cautious as to why someone with no spouse or children would want to insure themselves with that much coverage.
  2. They would be wary of the person’s ability to consistently afford the premiums.

There are a lot of costs that go into insuring someone. This includes administrative costs, medical exam and testing costs, and potentially having to pay out a large death benefit. So, life insurance companies weigh all the risks for those who apply for coverage.

That being said, if you have the justification and insurable interest for owning multiple life insurance policies, then doing so can be very beneficial.

» Calculate: Online life insurance policy needs

Let’s go over three scenarios in which laddering life insurance policies may be a good idea.

Scenario 1

You want life insurance coverage to ensure your children will have money for college, your mortgage will be paid, and to provide income replacement for your spouse in case you die prematurely.

Instead of purchasing a single $1,000,000+ dollar life insurance policy, you can layer multiple policies to save money and avoid being over-insured.

Breakdown of coverage length and amount for each policy:

  • Policy 1: $500,000, 10-year term to cover your children until they reach adulthood
  • Policy 2: $300,000, 20-year term to cover your mortgage
  • Policy 3: $250,000, 30-year term to replace your income until your spouse reaches retirement

By layering these policies, for the first 10 years you will have over one million dollars in coverage. Then the amount of coverage will decrease as your insurance needs decrease.

Tip: You can save money by purchasing the policies all at once instead of waiting for when the needs arise. This is because your age and health play a significant role in determining your policy premium costs. The longer you wait, the older you get, and the chances of health issues appearing will increase.

Scenario 2

You and your spouse have well-paying, steady jobs, a generous savings and retirement portfolio, and two young children under the age of 5.

You know that if one of you die prematurely, the other could afford a nice funeral and pay off any final expenses. However, you still owe $350,000 on your 20-year mortgage and there’s also the cost of raising two children.

For coverage, you mainly just want to ensure that your family can continue living in your home and your children get a good education.

Breakdown of coverage length and amount for each policy:

  • Policy 1: $400,000, 20-year term to pay off the mortgage
  • Policy 2: $150,000, 30-year term to provide for your children and their education

Once your mortgage is paid off, you could let the $400,000 policy expire leaving you with 10 years left of coverage on an additional policy, just in case.

Owning two separate policies instead of one $550,000 policy provides flexibility and affordability.

Scenario 3

You are a husband, a father, a business owner, and plan on retiring in 20 years. Right now, you have 15 years left on your mortgage and two children, ages 10 and 15. Here’s a policy laddering strategy you would want to consider.

Policy 1: A permanent (whole) life insurance for your spouse

This policy would ensure your wife would have money in her retirement years to replace social security benefits, cover estate taxes, pay for funeral costs, and any other final expenses.

Policy 2: 20-year term for your business

To supplement the whole life policy, you could add a 20-year term life insurance policy that is structured to fund a buy-sell agreement. This policy would actually be owned by the business or the other owners of the business.

This policy would give the remaining business owners the funds to buy your share, which would allow the surviving owners to keep the business while your family still gets a payout.

Policy 3: 15-year term for your mortgage and children

In addition to the other two policies, you could also add a 15-year term policy to cover the remainder of your mortgage and both of your children’s education.

Now, why would you purchase three different policies here instead of just one?

With multiple policies in place, once your children are grown and you’re retired, you can let the term policies expire. Rest easy knowing you’re still on this side of the grass and that you have a permanent life policy locked in place to cover final expenses.

Owning additional term policies instead of a large permanent life policy for all those years would align better with your needs, be more affordable, and allow for different ownerships.

Owning Multiple Life Insurance Policies

In most cases you can save money by owning multiple life insurance policies, but it’s important to note that each policy has a fixed policy charge. Meaning you’d pay an annual charge (a nominal $50 fee or similar) for each policy you own.

Also, each of your policies would be subjected to the insurance costs associated with policies within that band of coverage. The larger the policy, the lower the costs are per thousand of coverage—similar to there being discounts for buying in bulk.

» Compare: Term life insurance quotes

You can have multiple policies from different insurance companies.

Let’s say you purchased a $150,000, 20-year term policy from Life Insurance Company A before you had children. You now have a baby and want more coverage but found a better rate with Life Insurance Company B. You are free to apply to the second company and still keep your first policy.

Life insurance is very flexible and can be structured to fit your individual needs. If you are unsure what your coverage needs are or whether multiple policies would be in your best interest, contact Quotacy.

We’ll help you find the right coverage at the best possible price, whether you need one or multiple life insurance policies.

Knowing What to Know

We understand learning the ins and outs of life insurance can be tedious. To help you find additional information relevant to your situation, here are related articles that people like you found valuable.

 

Note: Life insurance quotes used in this article are accurate as of August 13, 2020. These are only estimates and your life insurance cost may be higher or lower.

Photo credit to: www.RachelMFry.com

Watch the Buy Multiple Life Insurance Policies Video

Listen to the Buy Multiple Life Insurance Policies Transcript

Read the video transcript

Welcome to Quotacy’s Q&A Friday where we answer your life insurance questions. Quotacy is an online life insurance agency where you can get life insurance on your terms.

I’m Jeanna and I’m Natasha.

Today’s question: Can I buy more than one life insurance policy?

The answer is yes. You can own multiple life insurance policies as long as the amounts are justified and you do not go over your insurability limit. Your insurability limit is the total amount of coverage you can be insured for across all policies at one time. This limit is usually quite large and most people don’t have any problems keeping under the amount.

And it’s actually quite common to own multiple life insurance policies on yourself. This strategy is called laddering and can be helpful in saving you money over the years.

Your needs change as life goes on. For example, most young families have the greatest financial need during the first 20 years after starting a family. But after kids are grown and out of the house, your coverage needs diminish.

By laddering policies, you can layer multiple policies in such a way that you have varying amounts of life insurance coverage throughout the years, but the coverage overall decreases as your need for it decreases. It ensures you aren’t paying for coverage that you don’t need.

Let’s look at an example to help illustrate this strategy.

Rhett and Scarlett are married and just purchased a home. They also have two young children, both toddlers.

Laddering life insurance policies graph

Rhett and Scarlett each purchase a 30-year term life insurance policy with $250,000 in coverage. This ensures that if either of them were to die unexpectedly, the mortgage can be paid off and the family would not have to be uprooted.

They also each purchase a 20-year $250,000 term life insurance policy to provide the surviving parent the necessary financial support to raise their children if either Rhett or Scarlett died suddenly before the children were independent.

Lastly, Rhett and Scarlett each purchase a small $50,000 whole life insurance policy. This coverage lasts their entire lives and can help cover end-of-life expenses.

Now let’s take a look at why this strategy can save Rhett and Scarlett money.

buying whole life insurance policies graph

Let’s say instead of laddering the previous policies Rhett and Scarlett decided to just each buy a whole life insurance policy to cover all their needs. They each buy a $500,000 whole life policy that will provide funds to cover the mortgage, raise their children, and help with final expenses—no matter when they die.

These policies do accumulate cash value and can provide dividends, but on a monthly basis, a $500,000 whole life insurance policy will cost Rhett about $517 per month and Scarlett $433 per month.

buying one large policy versus laddering policies graph

Or let’s say Rhett and Scarlett decide to each buy a $500,000 30-year term policy to cover all their needs instead of two $250,000 policies with different term lengths.

With the laddering strategy, Rhett is paying a total of $37 per month for both policies for the first 20 years until the first policy ends. Then he only pays $23 per month for the remaining 10 years of his 30-year term policy. And you can see Scarlett pays even less.

If Rhett instead purchased the one 30-year policy with a face amount of $500,000, Rhett would pay $38 per month all 30 years.

If Rhett & Scarlett outlive their laddered policies:

Rhett: ($14/mo x 20 yrs) + ($23/mo x 30 yrs) = $11,640
Scarlett: ($12/mo x 20 yrs) + ($20/mo x 30 yrs) = $10,080

If Rhett & Scarlett outlive their $500k 30-year policies:

Rhett: $38/mo x 30 yrs = $13,680
Scarlett: $32/mo x 30 yrs = $11,520

How much Rhett & Scarlett save with laddering:

Rhett: $13,680 – $11,640 = $2040
Scarlett: $11,520 – $10,080 = $1440

Over the long run, if Rhett outlives his policies, with this ladder strategy he would save himself $2,040. And Scarlett saves herself $1,440.

The laddering strategy can save you some money while simultaneously making sure all your needs are covered through the years.

Most families do not need $500,000 in permanent life insurance, and a household spending nearly $1000 each month on life insurance coverage could spell financial disaster for most realistic budgets. However, laddering term life insurance coverage with a small whole life policy can be very beneficial. And not all families even need whole life insurance coverage at all; oftentimes term life insurance in addition to your everyday savings and emergency fund can provide the right amount of financial protection.

In many cases you can save money by owning multiple life insurance policies, but it’s important to note that each policy has a fixed policy charge. So by owning more than one, you would be paying more than one annual policy fee. However, all the quotes we showed in the previous examples did include these charges, and our fictional friends still saved money.

If you’re unsure what type of life insurance you need, how much to buy, or if laddering is a smart strategy for you, we can help you figure it out. If you have any questions about life insurance, make sure to leave us a comment. Otherwise, tune in next week when we talk about when you should review your life insurance policy. Bye!

About the writer

Headshot of Natasha Cornelius, a life insurance writer, for Quotacy, Inc.

Natasha Cornelius

Marketing Content Manager

Natasha is a writer and content editor at Quotacy. She is also co-host of Quotacy’s YouTube series. She can't get enough of life insurance and outside of work is also working toward her Chartered Life Underwriter designation. Connect with her on LinkedIn.