Having Two Life Insurance Policies: Wise Or Wasteful?

It is possible to have more than one life insurance policy, and there are several reasons why this might be a good idea. The primary reason for taking out life insurance is to provide financial protection for loved ones, and having multiple policies can help secure enough coverage to meet their needs. Life insurance needs may change over time, for example, when a couple gets married, has children, or buys a home. Multiple policies can also help cover specific life events, such as paying off a mortgage or supporting children through education. This approach is called laddering and can be a cost-effective way to reduce coverage as your financial risk decreases over time. However, it's important to be aware of the potential drawbacks, such as the increased cost of multiple premiums and the administrative burden of managing multiple contracts.

You can have multiple life insurance policies to meet different financial goals

It is possible to have multiple life insurance policies, and there are several reasons why you may want to consider doing so.

Protection for Different Purposes

You may want to take out an individual term life policy to cover your family's living expenses if you pass away. Permanent life insurance can also be used for this purpose and can provide another tool for retirement savings or estate planning.

Higher Levels of Coverage

You may need to increase your coverage if you have a baby or start a new business venture and take out loans to do so. The extra insurance can help ensure your company can pay off the loans, even if you pass away.

Supplementing Your Workplace Policy

You may have group life insurance through your job, but you may need more coverage to help secure your family. An individual policy can supplement your workplace plan.

Coverage for a Specific Life Event

You may choose to buy a second or third life insurance policy if you need more coverage for a specific life event, such as growing your family, paying off your mortgage, or taking out a business loan.

Financial Strategy

Having multiple life insurance policies can be part of a larger financial plan, known as a ladder strategy. This involves purchasing several term life insurance policies with varying term lengths. Over time, the policies expire at different rates as you pay off debts, allowing you to pay a lower premium with multiple policies than with a single high-coverage policy.

Peace of Mind

Having multiple life insurance policies can provide peace of mind, knowing that your loved ones will be financially protected if something happens to you.

When deciding whether to take out multiple life insurance policies, it's important to consider your financial goals and circumstances. It may be beneficial to consult a financial professional to determine if this strategy is right for you.

You can have multiple policies to supplement a small group insurance policy

It is possible to have multiple life insurance policies, even from different companies. This can help ensure that you have enough coverage to meet the needs of your loved ones at a price you can afford.

One of the most common reasons for having multiple life insurance policies is to supplement a permanent policy with a term policy. Permanent insurance premiums can be much more expensive than term life premiums, so some people opt to have both. For example, you could have a permanent life insurance policy large enough to cover your spouse's needs in case of your death, while also taking out a cost-effective 20-year term insurance policy to cover your children while they are still under your roof.

Another common reason for having multiple policies is to supplement a work policy. Many employers provide access to cost-effective life insurance as part of their employee benefits packages. However, workplace life insurance coverage often needs to be supplemented with other insurance to provide adequate ongoing protection. For example, the work policy may not be enough to meet your family's needs, or it may not be "portable", meaning you cannot take your coverage with you if you leave your job.

Other reasons for having multiple life insurance policies include temporary supplemental coverage (e.g. until your mortgage is paid off), overlapping terms, significant life events, extended coverage with policy riders, and estate planning.

However, having more than one life insurance policy may put you at risk of being over-insured, which can cause an unnecessary financial burden as you pay for more premiums. It can also make it challenging to pay for multiple policies during times of financial hardship.

You can have multiple policies to cover a specific life event, like paying off a mortgage

Yes, it is possible to have multiple life insurance policies, and there are several reasons why you may want to consider it. One of the main reasons is to ensure you have enough coverage to meet the needs of your loved ones at a price you can afford. For example, you may want to supplement a permanent policy with a term policy to cover your children while they are still young.

Another reason for having multiple policies is to cover specific life events. For instance, you may want extra financial protection for your children until they become adults or while you pay off your mortgage or a business loan. This approach can be part of a larger financial plan called a ladder strategy, where you buy several term life policies with varying term lengths. Over time, the policies expire at different rates as you pay off debts, and you may be able to pay a lower premium with multiple policies than with a single high-coverage policy.

However, having multiple policies may not be suitable for everyone. It can be complex and may put you at risk of being over-insured, causing an unnecessary financial burden. Before taking out multiple policies, it is recommended that you consult a financial professional to ensure it is the best option for your specific circumstances.

You can have multiple policies as part of a larger financial plan, called a ladder strategy

Having multiple life insurance policies can be part of a larger financial plan, known as a ladder strategy. This strategy involves purchasing several term life insurance policies with varying term lengths. Over time, the policies expire at different rates as you pay off debts. When the ladder strategy works as intended, you can generally pay a lower premium with multiple policies than with a single high-coverage policy. However, this approach typically requires complex planning and is usually done best under the guidance of a licensed financial advisor.

The ladder strategy is a good option if you need more coverage or want coverage for a specific life event. For example, if you are growing your family and want extra financial protection for your children until they become adults, you could consider buying a second term life insurance policy that can offer that protection for 15 or 20 years. You might also consider buying another policy while you pay off your mortgage or a small business loan. This may offer financial support to cover your debts if you were to die before a loan is paid off.

Let's say you are the breadwinner of your family and want to cover your income, your mortgage payments, and your children's college tuition fees. Instead of buying a $1 million life insurance policy, you could buy three term policies of different lengths and amounts to match each need:

• 10-year, $500,000 term life policy. If you die within the first 10 years, all three policies will pay out, providing your family with a $1 million life insurance death benefit. These funds can help replace your income and pay off large debts like a mortgage while your kids are still at home.
• 20-year, $300,000 term life policy. If you die within the second decade, the first policy has expired, but the other two remain active, and your family will receive $500,000. The payout can help cover college costs or living expenses for anyone who still relies on your income.
• 30-year, $200,000 term life policy. If you die within the third decade, only the third policy is active, and your beneficiaries will receive $200,000. By this time, your children may be financially independent, and the smaller life insurance payout can cover any remaining costs, such as mortgage payments.

This laddering strategy can save you money if you know your coverage needs won't change. However, if your coverage needs are not straightforward or predictable, you may be better off buying one policy and adjusting your coverage over time.

You can have multiple policies to protect against the risk of an insurance provider failing

Life insurance is a contract, represented by a policy, in which a policyholder receives financial protection or reimbursement against losses from an insurance company. The company pools clients' risks to make payments more affordable for the insured.

An insurance policy is a legal contract between the insurance company (the insurer) and the person(s), business, or entity being insured (the insured). The primary reason to buy a life insurance policy is to help provide financial protection for those who may depend on them. If you die, life insurance pays your beneficiary a death benefit as long as premiums are paid.

There are no limits on how many life insurance policies you may own, and there are some situations where holding multiple life insurance policies may help you plan for your financial future. You can own multiple life insurance policies from the same or different companies.

Having multiple policies can help you secure enough coverage to meet the needs of your loved ones for as long as they need protection at a price you can afford. For example, you may want a term policy to take care of your family and another to cover business loans or operational costs in the event of your unexpected death.

However, having more than one life insurance policy may put you at risk of being over-insured, creating a misalignment with your actual needs. This can cause an unnecessary financial burden as you pay for more premiums, reducing your financial flexibility and preventing you from investing those funds into savings, retirement, or paying off debt.

Frequently asked questions