How many life insurance policies can I have and what is the maximum amount of coverage I can buy?
The answer is simple, you can have as many life insurance policies as you want. There is actually no legal limit to the amount of policies you can have in place on yourself. The insurance companies only put a limit on the total dollar amount of coverage you can have in place.
Insurance companies look at life insurance as a product designed to replace income. They base the amount of insurance you can qualify for off your current annual income and how many expected years an individual will continue to work, or till a typical retirement age.
The income table below is used to determine an appropriate amount of coverage an individual can have in place.
Many people initially think that having one life insurance policy can solve the lifelong need for protection and that is actually rarely possible.
As we progress through different phases of life our need for life insurance coverage can increase but more commonly decrease.
Using the example above, a 35 year old with a 135k/year income can maximize the amount of coverage he can have in place at approximately $4,000,000 of coverage. With an expected 30 year working career ahead of him, could one policy adequately cover him for the next 30 years? Possibly. However, depending on the client’s situation it’s pretty unlikely. On top of that, buying a $4,000,000 policy on a 30 year term would be relatively expensive and there could be a much more cost effective way to structure that coverage that aligns with our typical life cycles.
At first glance one might think doing a $4,000,000 – 30 year term is the right policy. And it very well could be but since none of us have a crystal ball and none of us can accurately predict the future, we need to use facts about life to help us structure a plan that works alongside life’s expected milestones.
Using a few practical, theoretical and realistic milestones we can come to the agreement that:
- Theoretically each year you are alive is a year that income was generated, which means a death did not occur premature which means you no longer need to insure that year of income since you already earned it.
- Theoretically each year you earn income, you pay off debt. Debt is one of the main reasons we need insurance, so we don’t leave other people with our debt.
- Theoretically each year you are alive, your kids become older and less dependable on you decreasing your need for insurance
- Theoretically each year you are alive, we should be increasing our net worth, decreasing our need for life insurance.
Using this type of methodology allows you to understand we need a lot of life insurance while we are young during our higher income earning potential years. Also, this is when our dependents are at the height of depending on us financially. However, as each year passes we should work towards our goal of actually not needing this product because we are working on becoming self insured and have our own assets to leave to our family.
One strategy or structure that might be a great fit is called Layering. This is combining multiple policies giving us the maximum amount of coverage at the lowest possible price. Essentially, you are staggering your coverage so that it fits the need for coverage now and gradually falls out as you get older and your dependents are less reliant upon our income.
Can I Buy Multiple Policies?
Yes! This is called Layering or Stacking life insurance to suit your different needs in life.
An example of layering/stacking this type of coverage could look something like this:
4M of total coverage structured across 4 lengths of time.
You can purchase four different $1,000,000 policies across 4 different lengths of time.
Policy 1: $1,000,000 for a 10 year Term
Policy 2: $1,000,000 for a 15 year Term
Policy 3: $1,000,000 for a 20 year Term
Policy 4: $1,000,000 for a 30 year Term
This gives you maximum protection during the first 10 years of time at $4,000,000 and would each policy would gradually end as we get older. This would also be SIGNIFICANTLY less expensive than buying one $4,000,000 policy for a 30 year Term.
Option 1: A healthy 35 year old male who wants a $4,000,000 on a 30 year Term would pay $2940 per year. Thus, paying $88,200 over the lifetime of the term.
Options 2: If that same healthy 35 year old male structured his goals on a layered approach he would have 4 different policies; $1,000,000 for a 10 year Term for $250 per year, a $1,000,000 for a 15 year Term for $309 per year, a $1,000,000 for a 20 year Term for $416 per year and a $1,000,000 for a 30 year Term for $802 per year. Thus, paying $39,515 over the lifetime of these policies.
That’s a SAVINGS of $48,685 over 30 years with this approach. It’s definitely a strategy worth considering.
Layering multiple policies can make a lot of sense and can be purchased all at once or at different stages of your life.