It is possible to have more than one insurance policy. There are various reasons you might want more than one life insurance policy. You might decide to have more than one insurance policy if you’re going to address multiple needs. Having more than one life insurance policy does not mean that there is no limit to the total coverage you can get from your policy. The majority of life insurance companies have caps, but these limits can be higher than you think. If you are thinking about buying another coverage, or you are evaluating your insurance need, here is what you need to know about having more than one insurance policy.
Reasons to buy more than one insurance companies policy.
You need life insurance to secure those who rely on you financially. However, a life insurance policy has other advantages, and your insurance need can change with time. You can certainly have more than one life insurance policy because of these reasons:
- To add an individual policy to your group coverage: You can get coverage in a low or no-cost way by using the supplemental life insurance offered by your employer. It would help if you had an individual life insurance policy because you may not maintain your group life insurance suppose you leave your job.
- To fulfill various financial goals: The two types of life insurance serve different functions. Term life insurance policy is best for basic income replacement, while the permanent policy cash value helps when planning for retirement.
- To build an insurance ladder: When you have more than one insurance policy, you can build enough insurance with the life insurance laddering strategy. This strategy is good because it is good to carry more coverage when your coverage is less and expenses are high than when your children have left home.
- To cover long-term care costs: You may consider buying more life insurance as you get older because this will help pay for your long-term care. You can get long-term care benefits and permanent life insurance with hybrid life insurance products.
Life insurance limit
Even though you can have more than one life insurance policy, there is a limit to the total amount of coverage you can buy. This limit is mostly dependent on your net worth or income.
Based on your age, the total amount of coverage you can purchase relative to your income varies. This amount can also vary depending on the insurer.
Below are the standard coverage limit you can buy according to your age
- If you are 40 years or below, your total coverage limit is 25 to 35 times your annual earnings.
- If you are 40 to 50 years old, your total coverage limit is 20 to 25 times your annual earnings.
- If you are 50 to 60 years old, your total coverage limit is 10 to 20 times your annual earnings.
- If you are 60 to 70 years old, your total coverage limit is 5 times your annual earnings.
Your total coverage limit can increase to 85 percent of your net worth if you need life insurance for estate planning rather than ordinary income replacement.
These limits apply to the total amount of coverage and not each policy. If you need more life insurance, you must estimate your existing insurance to know the remaining coverage you can buy.
Other factors may be considered when calculating the amount of coverage you can buy. These factors include health challenges, dangerous specialties, or jobs that increase your insurance risks. The above factors reduce the total amount of coverage you can buy.
What you should know about additional life insurance policy
Based on the amount of coverage you need, you may experience extra hurdles before getting more than one insurance policy. Here are the things you might face during the process:
- You will declare your existing coverage: When you want to buy a life insurance policy, you need to disclose your existing policy. When you provide your existing coverage, the insurers will check the MIB Group database to verify the coverage information. The insurers will also contact reinsurance companies because they report the existing coverage provided to an individual by another insurer. This is how insurance companies prevent fraud and determine if you can still get more coverage.
- You may need to provide evidence of income and assets: If you want to buy a huge amount of coverage, the insurance company may request a financial statement from a reputable third party like an accountant. When you want to buy an additional policy, you may need to provide your tax records, even if the coverage is small.
- You may need additional medical underwriting requirements: Suppose you want to buy coverage of $5 million or more, insurers may request for an electrocardiogram (EKG) test as part of the needed insurance medical exam.
- You may need multiple policies: Due to the $5 million to $10 million limit on individual policies, you may need to buy several policies from different companies if you want to get a large amount of insurance coverage.
When considering an additional life insurance policy, it is good to use an independent insurance agent. Using an independent agent puts you in a better position to understand the exact amount of insurance coverage that fits your needs. The agent will help you look for quality coverage and help build a case explaining why the insurance company should give you coverage beyond the limit.