Life insurance isn't single-purpose, it's a multifaceted tool that can protect you in many ways. With it being as versatile as it is, can you have more than one life insurance policy? You can, indeed — and there are several reasons you might want to carry multiple insurance policies.
Navigate Life's Ups and Downs
Your circumstances change over the course of your life. Your insurance needs might decline over time — and that's a prime example why you might want to carry multiple policies.
Consider this situation: There's a young family, and one of the parents has a higher risk of health complications that could lead to death. Were that to happen, the other parent would be left alone, but that wouldn't be the end of it. There would still be a house to pay off and children whose needs could last until each child is self-sufficient — and even then, the remaining parent might still want to pay for the kids' college education.
One way the family could protect itself is by carrying multiple life insurance policies with different terms. The foundation of this strategy could be a 20-year term policy, which would help the family avoid a worst-case scenario and provide financial security until their children reach adulthood. But what if the family has a 30-year mortgage — and, to compound matters, the insured died 21 years into the mortgage? An additional 30-year term life insurance plan could help ensure that the loan gets paid off and that the surviving spouse is not left in dire straits.
A supplemental life insurance policy could be relatively small and inexpensive — for instance, it might only need to cover the remaining balance of the home loan. In our hypothetical example, the main policy could be a 20-year term life insurance policy for $800,000, and the secondary policy could be a 30-year policy for $200,000.
Secure Long-Term Financial Support
You might want life insurance coverage for the rest of your life, however long it is. So-called permanent insurance policies remain in force as long as you pay the required premiums or keep sufficient cash values in the policy. If you keep the policy in force, you could spend from its cash value or receive a death benefit later in life.
A permanent policy might be helpful if your beneficiaries need a substantial amount of liquid cash to pay debts, final expenses or other costs when you die. Because you don't know when that will be — and it might be many, many years later — a permanent policy could be helpful. Permanent coverage could also supplement any term insurance you use for income replacement.
The Pros and Cons of Multiple Policies
Depending on your circumstances, you might need additional insurance policies. For example, business owners sometimes use life insurance for buy-sell agreements to transition the business to somebody else when the owner dies. Ex-spouses might need life insurance as part of a divorce agreement. You can typically take out a policy for a specific need even if you already have other coverage in place, though it might have a stricter limit.
Holding multiple policies could provide several benefits. A mix of short-term and long-term policies could help ensure that your needs are covered: The short-term coverage goes away when you no longer need it; your long-term coverage stays in place as long as necessary. Additionally, you can add a life insurance plan for a unique situation without needing to cancel any existing policies.
There are some drawbacks, however. More policies means more premiums, so you'll need to make sure that you can afford them over the long term. And be careful about applying for excessive amounts of coverage: Insurers are typically willing to accommodate a variety of needs, but as the dollar amounts get bigger, you might need to prove that you need the coverage.
The Bottom Line
When can you have more than one life insurance policy? In many different cases, really — and it's a common practice. Combining policies lets you control how much coverage you have at various points in your life. As a result, you can manage your costs and design a strategy that best matches your needs.