One question we often get asked is: “How many life insurance policies can I have?”

You can buy as many life insurance policies as you need to meet your financial goals. However, there’s a limit on the total amount of coverage you can carry.  

Why is that?

The reason is simple: a life insurance policy is there to help you secure your family’s financial future — not to make you worth more dead than alive. So while you can have multiple life insurance policies, the sum total of their death benefits cannot exceed your insurability limit. 

Let's explore how this works.

Can You Have Multiple Life Insurance Policies?

Yes, it is legal to have more than one life insurance policy. There is no cap on the number of policies you can own, but the total amount of death benefit you can have is capped. Your insurability is largely based on your annual income and age. 

While each insurance company follows its own financial underwriting guidelines to determine an applicant’s insurability limit, there are certain standard limits. 

• Applicants aged 40 or younger can buy up to 20-35 times their annual income
• Applicants in the age bracket of 40-50 can purchase up to 20 to 25 times their annual income 
• Applicants over the age 50 but below age 60 can get up to 10-20 times their annual income
• Applicants in the age bracket of 60-70 are limited to 5 times their annual income

For example, if you are 37 years old and make $80,000 a year, your insurability limit would be somewhere in the range of $2,800,000. This limit is for the total amount of coverage — not per life insurance policy.  

Keep in mind that life insurers look at other factors besides your income when determining your insurability limit. A serious underlying condition or a dangerous hobby can negatively impact your risk profile and by extension your insurability limit. 

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Why Multiple Life Insurance Policies?

You may need more than one life insurance policy to ensure your loved ones have adequate protection. Multiple policies might also serve you better than one plan if your life insurance policy needs have changed over time.  

Here are some common scenarios in which you may want to opt for multiple policies. 

1. Different financial goals 

Each life insurance policy comes in two flavors — term life and permanent life insurance. While they share some similarities, both of them actually serve different purposes. Term life insurance is suitable for income replacement, whereas a permanent life plan can be used for retirement later in life. If you want to use life insurance for both retirement planning and income replacement, combining term life and permanent life insurance can make a lot of sense. 

2. To supplement your group insurance policy

You may have access to group life insurance policy at no or little cost through your employer. However, these policies tend to have smaller death benefits — up to one or two times the annual salary. If you have a young family, not augmenting the existing coverage from the group life insurance payout with an additional life insurance policy may potentially leave your dependents financially vulnerable in the future. 

Another problem with a group life insurance policy is that it is not always portable. If you lose or leave your job down the line, you may find yourself shopping for a policy on your own, when premiums would likely be considerably higher on account of age and health. 

For these reasons, many Canadians with access to a group life insurance policy choose to supplement it with a term life insurance policy. This strategy allows you to lock in a low rate, provide for your loved ones regardless of your employment status, and ensure they receive adequate financial assistance in the event of your death. 

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3. To create an insurance ladder

Life insurance needs are not set in stone. Instead, they change as your circumstances change. Most people require more coverage in their 30s and 40s, when they have young kids and a lot of debt, than in their later years. 

Having only one life insurance policy for all your insurance needs means after a certain point you would be paying for coverage even though the need for it has ceased. That’s why experts often recommend buying multiple term life insurance policies with different face amounts and durations, as this strategy lets you adapt coverage as your needs change. At any stage in your life, you would only pay for the coverage you actually need. 

Here’s an example that shows how insurance laddering work:

As a young parent, you want life insurance to carry your children through college and cover your student loan and mortgage. You expect your children to become financially-independent adults in 20 years and have 30 years left on your mortgage repayments and 10 years left on your student loan repayments. You decide to buy three term life plans at the same time, each covering a specific life insurance need. 

• You buy a 10-year plan of $40,000 to cover your student loan, a 20-year plan of $260,000 to protect your family until your kids finish college, and a 30-year plan of $180,000 to cover the mortgage.
• You will have additional coverage for the first 10 years, when you have a lot of expenses — like childcare, student loan, and mortgage.
• Your life insurance coverage will decrease as your expenses reduce — kids growing up and paying off the student loan and mortgage
• At any stage in life, you would only pay premiums for the coverage you need

4. More coverage than what your current policy provides

Life insurance is rarely a set-it-forget-it solution. If your financial goals have matured over the years, the coverage you currently have may no longer be enough. In this case, purchasing a new policy to fill in the gap is often a cheaper option than replacing the existing policy. 

For example, that term life plan you took in your late 20s was a good fit at that time, but two kids and a large mortgage later, you may find yourself needing more coverage than what you currently have. Depending on your needs and budget, you may opt for a top-up term life plan or a whole life plan to cover all your financial obligations. 

5. To help finance your end-of-life expenses

In Canada a funeral costs anywhere between $5,000 and $10,000, on average. If you do not want to saddle your loved ones with your end-of-life expenses, consider topping up your group or term life policy with a final expense plan. The latter is typically a permanent life insurance policy with a small benefit — up to $50,000 — meant to cover funeral expenses.

Pros and Cons of Multiple Life Insurance Policies

Having multiple insurance policies is advantageous in many situations, but there are some administrative risks associated with this strategy. Knowing about the pros and cons can help you make an informed decision regarding whether to buy one or multiple policies.

‍What to Know about Additional Life Insurance

If you are buying a lot of life insurance coverage, you may have to jump through some additional hoops. These include: 

• More intensive medical underwriting: Most life insurance companies require applicants who want to take out a policy worth $5 million or more to undergo an electrocardiogram (EKG) as part of the standard medical exam. It bears noting that if you are buying two policies, you might have to take two medical exams instead of one. 
• Additional proof of assets and income: For policies with death benefits of $5 million or more, you will likely be asked to provide a financial statement from an accountant or another third party. 
• Questions regarding existing coverage: As part of the application process, the life insurance companies would like to know if you have any existing policies. They will then verify the information you provide by checking the MIB Group database, which contains consumer files on applicants. This is how insurers are able to protect themselves against fraud and find out if you already have coverage or have applied with multiple providers at the same time. In case the insurer thinks you are trying to get more coverage than your income, net-worth, age, and lifestyle justify, they may turn down your application. 

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Conclusion

Having multiple life insurance policies is completely legal. In fact, in some situations it is the most cost-effective way to cover all your financial needs. 

Not sure if buying multiple policies will work to your advantage? Let Dundas Life help you. We will take time to understand your personal situation and long-term goals and offer a solution tailored to your unique circumstances. If you need additional coverage, we will also help you find the right coverage at the lowest price. 

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Frequently Asked Questions

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

There is no limit to how many life insurance plans you can have. You can buy as many you need to meet your goals. If a single plan can fulfill all your financial obligations, that’s great. But if you need two or more policies to meet varied financial needs, that’s fine too.

Keep in mind there’s a limit to how much total coverage you can buy. If you have reached that limit — generally 5 to 35 times the annual income, depending on your age — you will not be able to get a new policy. 

Can you apply to multiple life insurance policies at the same time?

Yes, you can submit multiple life insurance applications at the same time. However, doing so may not be the best strategy. 

When you apply for coverage, a life insurance company determines how much coverage it can offer you based on your net worth or annual income. If you send out multiple applications, it could raise some red flags because providers might think you are you are trying to buy more coverage than you reasonably need. This could cause confusion and delays. 

Additionally, multiple life insurance applications might mean getting the life insurance more than once, which could be an inconvenient. 

Can I have life insurance policies from different companies?

Yes, you can have life insurance policies from different insurance companies, and in some situations it may make sense to do so. For example, you want to supplement your term life policy with a permanent plan, but your current provider only sells term life insurance. Or you want a new term life plan and another company offers a better rate than your existing provider.  

Can I nominate different beneficiaries for different policies?

Yes, you can choose different beneficiaries for each of your life insurance policies. 

Can I combine term and permanent life insurance policies for more coverage?

Yes, you can buy combine term and permanent life insurance. What’s more, you can even have multiple of each if necessary. 

Term and permanent life insurance are not mutually exclusive. Mixing them may help you meet all your financial obligations in the most cost-effective way. 

Let’s say you require $500,000 in coverage to help your spouse pay off the mortgage, cover your children’s education, and take care of your end-of-life expenses should you die prematurely. 

A large permanent life plan can cover all your needs, but it may not fit your budget. On average, permanent life insurance is 10 to 15 times more expensive than term life. A Term life plan comes with an expiry date and hence is not the ideal way to cover end-of-life expenses. If you outlive the policy, your family would have to shoulder the funeral cost. 

In this scenario, supplementing a large term life plan with a small permanent life policy can help you meet all your life insurance needs in an affordable way. 

Will all my policies pay out when I pass away?

Yes, all of your life insurance policies will pay out when you die.