Can you have multiple life insurance policies?
It is actually quite common for some people to have multiple life insurance policies. Often, it will be because more cover is needed due to a change in circumstance, but some people can split their life insurance right from the outset.
You may wish to have multiple life insurance policies if you:
– Are covered by your work scheme but it’s not enough to protect your family
– Want to protect both your business and your family
– Have children and would like both a joint and single-life policy
– Are looking for a higher amount of cover
– Would like both a permanent life insurance policy and a term-life policy
– Your circumstances have changed
Life insurance from your employer and a personal policy
If you’re lucky enough to receive life insurance from your employer, it may still not be enough to protect your family from financial difficulty. If you are single and renting, then you may not need additional life insurance. However, if you have a family and a mortgage, then often what you receive from your employer will not be enough to cover the bills, the mortgage payments and any debts you may have.
Employers generally provide a multiple of your salary; whether this is 4 times or 10 times can make a big impact on the level of cover. Once you calculate how much life insurance you need, you can determine whether what they have provided is enough. In addition to this, your policy doesn’t always move with you when you change roles. Therefore, getting a personal policy on top of what your work has provided could be beneficial.
Business owners and multiple life insurance policies
It is fairly normal for business owners and directors to have multiple life insurance policies. Often, they will have either a key man insurance or shareholder policy that puts money back into the business in the event they were to pass away. On top of that, they may often have a personal policy that will leave money for their family.
If you are a business director working for a limited company, then you may be able to benefit from running your life insurance through the business. This type of policy is called a relevant life policy and can offset against corporation tax. It also does not require income tax or national insurance to be paid on the premiums. A relevant life policy is put into a trust so that you can choose who receives the money. The payout is also not subject to inheritance tax.
Joint and single-life policies
Couples who purchase a house together may originally invest in a joint life insurance policy. Therefore, when one partner is to pass away, the other receives the money so that they can pay off the mortgage. A joint life insurance policy covers both lives and is usually paid on a ‘first death’ basis. Once a payout is made, the policy then ends.
This leaves the surviving person without life insurance cover. Some people, therefore, take out a single life insurance policy as well. This may be later in life when you may have children or have elderly parents that need care. Furthermore, it could also cover any outstanding debts or the cost of a funeral.
Taking out a higher amount of cover
Life insurance providers set underwriting limits on each policy. These limits are based on the minimum medical and financial evidence that they ask for when deciding on the premium amount and level of risk. The higher the amount of cover asked for, the more evidence required. The amount reduces, the older you are too as you will pose more of a risk.
Therefore, if you need a substantial amount of cover, you may have to provide a medical check and your life insurance policy could be delayed. These checks can start anywhere from 200,000 upwards, depending on your age. Taking out multiple life insurance policies with different providers i.e. splitting your cover with different providers, you could save yourself a lot of hassle. The premiums are cheaper for smaller amounts of cover too, so you could also be saving some money if not paying the same. It provides more guarantee you’ll get a payout too. Splitting your life insurance only really has benefits if you’re fit and healthy. If you have any substantial medical conditions, you may be asked to undergo a medical check anyway or at least provide a GP report. However, it can help if you are looking for a higher cover amount.
Permanent life insurance with a term life policy
In some cases, it makes sense to take out multiple life insurance policies. For example, you may set up a longer-term policy or a permanent life insurance policy to provide financial security for your family in the event you were to pass away. But you may also have a debt or loan that you plan to pay off over the next 10 years. You would no longer need to cover the loan after you’ve paid it off.
It makes sense, then to take out a separate term-life policy specifically for the loan, whilst still being covered by your permanent life insurance. You can also take out two term-life policies, to cover different situations, such as paying off a mortgage or when your children are no longer dependent on your income.
When your circumstances change
Obtaining life insurance is cheaper when you are younger. So it makes sense to take it out as soon as you feel you need it. That being said, over the years your circumstances are likely to change. For example, you have children, you get married, you purchase a larger house. If you originally wrote your life insurance into a non-discretionary trust, you are not able to change the beneficiaries on your policy. Therefore, you may want to take out another policy to provide money for any additional loved ones.
In addition to this, you may opt for a 30-year term for your mortgage, and then take out a 20-year term on top of this to cover your children until they are adults. In this case, a multiple life insurance policy approach makes sense.
You can get multiple life insurance policies, but you need to remember this:
You must disclose any other policies to your provider
Without doing so, you could be rejected for any claim that your family make in the future. As long as they are aware of the policy, you are entitled to have as many policies as you need. If you go with the same provider, they may not accept the new policy if you’re not honest. They may question your motives and why you didn’t disclose the policy in the first place. It’s best to inform them and then there are no discrepancies.
You can’t just insure yourself for millions and millions of pounds.
Although it may be tempting, there are actually limits on how much cover you can obtain. You cannot exceed your ‘human life value’. What this means is during the risk assessment phase in underwriting, your health, income and other details are taken. This all adds up to your human life value and life insurance providers won’t insure over this amount. Guidelines can be generous and sometimes you can get anywhere from around 15 to 30 times your income, depending on your age.
The benefits of holding multiple insurance policies
It is actually quite common for people to hold more than one life insurance policy in their lifetime. It can actually be beneficial in most cases. In particular, it can really help with milestone protection planning such as marriages, children, education and mortgage protection.
All providers are different too. Some offer different terms, some come with added benefits so by exploring your options you could get multiple benefits from different policies.
You can still claim on both policies
If you have more than one life insurance policy, you can still claim both. Your beneficiaries are entitled to receive that money. It’s important that you keep track of multiple policies, so they don’t miss out in the future and can inform life insurance providers when the policy matures.
Getting the best rates
To get the best rates on your life insurance you can work with an insurance advisor who will do all the heavy lifting for you comparing policies. You can avoid having to go through a medical check if you’re fit and healthy. Insurance brokers will also help to find you the best rates based on your individual circumstances. In addition to helping you decide if multiple policies are actually what you really need.
You’re never going to be younger and healthier than you are today. If you have dependents who count on your income, don’t put off buying your life insurance. You can always take out an additional policy or cancel the policy if your circumstances change. In fact, you could actually save money by taking out multiple life insurance policies.