Can someone hold multiple life insurance policies?
Circumstances may lead to you needing to change your coverage or add multiple life insurance policies to your current coverage. There is nothing prohibiting someone from holding several life insurance policies at the same time. Holding several life insurance policies of different lengths is called laddering, and is a cost-effective way to taper off coverage as your risk dissipates.
Life insurance policies are incredibly flexible and customizable. Not only do you have the choice between term life insurance and permanent life insurance, but you can also add life insurance riders to tailor a policy to exactly the coverage you need. That said, there are situations where you may need to contemplate changing your coverage or adding multiple life insurance policies to your current coverage.
It may seem strange to hold more than one life insurance policy simultaneously. Is it even allowed? We answer that and more below.
Can you have multiple life insurance policies?
Yes, in Canada it is perfectly legal and commonplace to hold multiple life insurance policies.
While there is no legal maximum number of policies (so you can have 2 life insurance policies or many more), insurance companies will look at the total amount of coverage you are seeking to determine whether it is reasonable and consistent with your needs.
In fact, you may already hold multiple life insurance policies and not even know it.
As most workplace insurance benefits include one life insurance policy, you would hold multiple policies if you took out any coverage on your own.
Beyond that specific situation, you can choose to have multiple life insurance policies of your own, from separate life insurance companies if you choose.
But why wouldn’t someone just get the coverage they need and hold only one life insurance policy?
Why someone would choose multiple life insurance policies
There are several scenarios where it makes sense to hold multiple life insurance policies at the same time.
For example, you may have already secured life insurance at a competitive monthly premium in your younger years that you think is sufficient. But, life happens. Perhaps a $250,000 policy you secured at that time is not adequate now with a new mortgage or children on the way.
Instead of discarding that coverage and starting from scratch with a new policy, you can keep your existing coverage and add more through a separate policy. This additional life insurance policy can have a different term and death benefit amount to better match your evolving needs.
Other reasons for taking more than one policy include laddering and risk avoidance. Laddering is a concept where you take out multiple term life insurance policies for varying terms (like 30, 25, 20 and 10 years) and with a decreasing amount of coverage as you grow older.
The idea stems from you having less financial risk and dependents as you age: children may become less reliant on your income, and you will have more and more of your mortgage debt paid down, as these may have been the reasons you acquired life insurance in the first place. Many Canadians also use permanent life insurance as part of their laddering strategy.
Risk avoidance is rooted in the unlikely event one of your chosen insurance providers fails or goes bankrupt. Some don’t like the idea of having all of their eggs in one basket, especially in the world of finances.
By spreading coverage among several insurance carriers, they ensure they still have coverage if one goes under. While there is nothing wrong with this approach, there are many “fail-safes” in the Canadian insurance industry that protect your coverage and make sure you are taken care of should something happen to your insurance provider.
Lastly, different kinds of insurance policies cover different kinds of needs. Term life insurance is great for providing financial protection to children or covering a mortgage debt, while whole life insurance (or permanent life insurance) is commonly used for long-term estate planning.
Pros and cons of holding multiple life insurance policies
|Allows you to add coverage as needs and financial goals evolve||More paperwork and multiple contracts to keep track of|
|Can protect different needs and goals with matching coverage||Multiple premium payments taken out monthly|
|Diversify coverage across providers||Policies added later in life will be more expensive|
|Cost effective; only pay for coverage when you need it.|
Can you apply to multiple insurance carriers at once?
Yes, you can apply to multiple insurance carriers, but there are often better and faster ways to get multiple life insurance policies then applying to several providers at the same time.
In North America, insurance companies share limited information regarding insurability of an applicant through a regulated body called the Medical Information Bureau (MIB). They do this to enhance transparency and consistency of information between the companies.
In rare cases, the information the MIB provides prevents the more unscrupulous applicants from holding too many policies simultaneously or providing false information to get insured by one company after getting declined by another.
If you are sending out multiple life insurance applications at the same time, it will raise some red flags among the providers and the MIB.
This will slow down your approval while they asses whether you have a good reason to apply to multiple carriers and in rare cases it may result in you getting out-rightly denied for coverage.
What are the alternatives to buying multiple life insurance policies?
There are many alternatives to applying for more than one life insurance policy:
- Using riders such as term riders or accidental death riders. They can be added to a base life insurance policy rather than buying the individual coverage.
- Adding guaranteed insurability. You can increase coverage in the future to meet your evolving needs.
- Converting your existing term life insurance policy – or a portion of it – into whole life insurance using the conversion feature.
In any case, enlist the help of an experienced digital broker like PolicyAdvisor whether you need one life insurance policy or think you will end up owning multiple life insurance policies.
We have the institutional knowledge and experience to help you navigate multiple applications and approvals, ensuring we don’t step on any toes as we present you with the potential costs and savings of multiple life insurance policies. Schedule a call today to get started.
Will all the policies pay out in full in the event of a death benefit?
Yes. You can claim on multiple policies and death benefits will be paid as per individual policy approvals and exclusions, if any. Life insurance policies do not coordinate or adjust benefits for other individual coverage that is in place.
Can you increase your life insurance coverage by buying multiple policies?
As mentioned above, yes – but within limits. Holding multiple policies is a common way for one to increase their life insurance coverage, but an insurance provider approves policies not only based on your health but also on the legitimacy of your coverage needs and your perceived ability to keep up with your monthly insurance premiums.
Overextending your finances to maintain several large life insurance policies does not make sense if the end result is you not having coverage at all.
Instead, calculate the right amount of coverage for your needs and contact a trusted broker to help tailor a life insurance coverage plan that works for your needs AND your budget.
The information and views provided herein is for general informational purposes only and should not be considered legal or financial advice.
- Carrying more than one life insurance policy is common for many reasons
- You can augment existing coverage or “ladder” policies for decreasing needs
- This can include holding both term life insurance and permanent life insurance
- Don’t apply with multiple carriers at the same time, instead get a broker’s help to navigate several companies without hiccups