The short answer is yes. You can have more than one life insurance policy, and you don’t have to get them from the same company. But the more important question is, why would anyone want to do so? Because buying multiple policies can help you make sure you have enough coverage to meet the needs of your loved ones, for as long as they need protection, at a price you can afford. This article will help explain:

  1. Reasons people get more than one life insurance policy
  2. How the different types of life insurance policies work
  3. Common scenarios for having multiple life insurance policies 

What are the reasons to get more than one life insurance policy? 

The primary reason to buy a life insurance policy is to provide what financial professionals call "income replacement": If you die, life insurance pays a lump-sum cash benefit that helps provide for the people who depend on your income. However, there are two reasons why a single policy may not be enough.

One is that insurance coverage needs can change over time. For example, when a couple marries, they may want a certain level of protection. As they have children, they may want to add more – often, substantially more. However, 20 years later – when the kids are out on their own – they may want to maintain a lower amount of life insurance coverage that lasts for the rest of their lives. (If you’re wondering, “How much life insurance do I need?” Guardian provides online tools to help you estimate.)

The other reason one life insurance policy may not be enough? There are different kinds of policies with varying features – and some provide additional financial benefits that can be useful while you’re still alive.

Different types of insurance policies, and how they work.

Life insurance comes in two basic forms: term life and permanent life. Both have their advantages and disadvantages.

Term life is the most popular form of life insurance, mainly because term life insurance rates are typically more affordable than whole life insurance rates (one type of permanent insurance). Term policies cover you for a predetermined period, or "term," typically ranging from 5 to 30 years. Once your policy ends, there is no more protection and no compensation from the life insurance company despite years of making premium payments. You may renew your coverage, but your life insurance rates will typically be more expensive because you are older. Your premium increase may be even more substantial if your health has deteriorated since you took out your initial policy. At that point, term life can become prohibitively expensive to renew. 

Permanent life insurance, on the other hand, covers you for your whole life.1 The policies also build cash value in a tax-advantaged way, which can be used in several ways.2,3 You can borrow against your cash value, use it to make premium payments in later years, or even cash out the policy to help supplement income in retirement.4 Importantly, your rates are based on your health when you take out the policy and are not affected by health issues you may experience later in life. 

How you get your coverage also makes a difference. You can buy a life insurance policy as an individual, but many people also purchase group coverage, typically through their workplace. A group workplace policy can provide lower-cost coverage, but the amount can be limited. So consider getting another life insurance policy to have the protection your family needs.

Some common scenarios for having multiple life insurance policies 

Scenario 1: Supplementing a permanent policy

The two most common types of permanent life insurance are whole life and universal life. These policies provide some powerful advantages compared to term life insurance, including the fact that they build cash value that can be used while you’re still alive. However, permanent insurance premiums are much more expensive than term life premiums. So, you might want to have both a permanent policy and a term policy.

For example, your financial strategy might include having a permanent life insurance policy that is just large enough to cover your spouse’s needs in case of your death. That way, you are covered for life, you’re building cash value, and your spouse will always have that protection. Then you can add a term policy for extra coverage needed while your children are younger and under your roof. For example, you might want to take out an affordable 20-year term insurance policy while your children are at home, then let the policy lapse at the end of the term. 

Also, some parents buy permanent life insurance policies for their children while they are young as wealth-building assets with affordable premiums. When those children have families of their own, they often want to take out additional insurance to help protect their beneficiaries. 

Scenario 2: Work policy supplement

Many employers provide access to affordable life insurance as a part of their employee compensation and benefits packages. This group rate term protection is often less expensive than a policy you might buy as an individual. However, there are a few reasons why you may want additional coverage:

  • As we noted earlier, the work policy may not be enough to meet your family’s needs. Adding another term policy can help make up the difference.
  • You may also want to have a permanent policy to build up tax-advantaged cash value and continue to have guaranteed protection later in life, even into retirement.
  • If you leave your job, the policy may not be "portable," meaning that you may not be able to take your coverage with you. If you can keep it, you will likely have to pay a higher rate.
  • While workplace coverage can be a valuable employee benefit, it often needs to be supplemented with other insurance to provide adequate ongoing protection. 

Scenario 3: Temporary supplemental coverage

There may be instances when you need more coverage, but only for a limited amount of time, for example, until your mortgage is paid off. Here’s another example: Let’s say you and your spouse each have coverage to replace your contributions to the family budget. However, you decide to stop working for a few years to earn an advanced degree. Your spouse may want to get another term policy for extra financial protection during this life event. Once you are back in the workforce, your spouse can let the extra policy lapse.

Scenario 4: Overlapping Terms

Unlike permanent insurance, term life policies have an expiration date. If you want to renew your policy when the term ends, the rate will typically be higher – and possibly much higher if you are diagnosed with a medical issue such as high blood pressure. So, you may want to get a new policy before the old one expires. 

For example, if you purchased a 30-year term life policy at age 25, it expires at age 55. You’re currently 40 and still in reasonably good health. Adding a second 30-year term policy now would protect you until age 70, and it will typically be less expensive than renewing your first policy at age 55, especially if your health deteriorates. If you don’t need all that coverage, you could choose to drop the original policy.

A variation on this strategy is called “laddering,” which is helpful for those who think their needs will diminish over time. Here’s how it might work: After talking with a financial professional, you determine that you need $1 million in coverage while your children are very young, but afterward, you’ll need less. You could decide to buy a $1 million 10-year term policy now, then renew for a lesser amount later.

But there’s a risk – you could be diagnosed with an issue that makes you uninsurable. So instead, you choose to buy three policies: a 10-year $500,000 policy for when the children are young; a 20-year $300,000 term policy that will last until they are young adults; plus, a 30-year $200,000 term policy (or permanent Whole Life or Universal Life) that will still be in place after the children are out of the home.

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Are multiple policies right for you?

While owning multiple insurance policies is an option, it's not always be the option for your needs. If you need more insurance, you may be able to increase the limit of your current policy. In any case, if you think you may need more than one policy, chances are your situation is a bit more complicated than most. We suggest talking to a knowledge financial professional who can answer your questions, help weigh the factors, and guide you to the coverage – or coverages – for your needs. If you don’t have someone to discuss insurance with, Guardian can help you find a nearby financial representative who will take the time to learn about your situation and present you with options that fit your specific needs and concerns.

Frequently asked questions about life insurance policies

What happens if you have two life insurance policies?

The answer depends on the types of policies that you own, but each policy will continue to provide coverage as planned. If you have a term policy (or policies), it will continue to provide coverage until the term runs out. You can also choose to terminate the policy. Assuming you keep paying your insurance provider, a permanent policy will not expire until you cash it out (for example, in retirement) or pass away.

Is there a limit to how many life insurance policies you can have?

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. 

Can I cash out my life insurance?

Term life insurance does not build cash value, so you cannot cash them in before you die. However, permanent life insurance policies build up cash value and allow you access to that cash value . There are three basic ways to use the cash value in your permanent life policy.

  1. Surrender the policy, which means the policy will be canceled immediately, and you will receive the cash value from your insurance provider. 
  2. Borrow against the cash value. This lets you take out a loan against whatever cash value the policy has accrued. While these loans may not have to be repaid, you should consider doing so to avoid having the insurance company reduce your death benefit. 
  3. Withdraw from the cash value. This means that you are taking out money without plans to repay.

Consider talking to a professional, such as a Guardian financial representative, before cashing out your policy to determine the best option for your specific situation.

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Disclaimer

1 All whole life insurance policy guarantees are subject to the timely payment of all required premiums and the claims paying ability of the issuing insurance company. Policy loans and withdrawals affect the guarantees by reducing the policy’s death benefit and cash values.

2 Some whole life polices do not have cash values in the first two years of the policy and don’t pay a dividend until the policy’s third year. Talk to your financial representative and refer to your individual whole life policy illustration for more information.

3 Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or

accounting professional regarding your individual situation.

4 Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.

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