There is a general misconception that, in line with home insurance and car insurance, you can only have one life insurance policy; this is wrong. In theory, there is no legal limit on the number of life insurance policies you can take out. There are pros and cons, different types of life insurance policies and also numerous scenarios to consider. We will now take a look at the various aspects of multiple life insurance policies and how they work.
Can you have two separate life insurance policies?
There is no legal limit on the number of life insurance policies any one person can take out. There are numerous reasons why you may have two or more life insurance policies, such as:
Change in circumstances
Due to a change in your lifestyle or state of health, you may be able to improve on the terms and reduce the premiums compared to an existing policy. You may have stopped smoking, lost weight, recovered from an illness or embraced a healthier lifestyle. The premiums associated with any life insurance policy revolve around the health risks of the insured person. If you are healthier, you should live longer and therefore pay premiums for longer. In turn, this would reduce your insurance company’s financial liability.
Settling individual financial liabilities
Whether you have a mortgage, credit card, personal loan or any other type of financial liability, life insurance can be handy. Upon death, any joint financial liabilities transfer to the surviving partner. Any life insurance payment could help to avoid financial hardship and even prevent the loss of your family home.
There are also other scenarios in which life insurance can be beneficial. It is essential to take the time to choose the right policy, or combination of policies, for your situation.
Commercial life insurance
One of the more prominent types of commercial insurance cover is key personnel life insurance. This ensures any financial impact caused by the death of key personnel within a company can at be least partially offset by a capital injection. Such insurance can assist in finding a replacement or ensuring the short to medium-term survival of the business.
Workplace pension schemes
Most workplace pension schemes will have a payment on death element, which is traditionally between two and four times the individual's final salary. An existing personal life insurance policy may complement this. Upon retirement, the work pension life cover would expire, and you may need to arrange additional cover. This could involve adjusting an existing policy or taking out new life insurance cover.
Inheritance tax planning
As life insurance policies are predominantly “written in trust”, they are not classed as part of the deceased person’s estate. Therefore, it is possible to use life insurance to cover any expected inheritance tax bill in the future. This would help to avoid a fire sale of assets and ensure your beneficiaries were able to benefit as you had hoped. This is an aspect of life insurance many overlook, but one which can prove extremely useful.
While the above information will give you an idea of various scenarios where multiple life insurance policies can be useful, this list is by no means exclusive. Therefore, when discussing your financial affairs with your adviser, it may be helpful to broach the subject of life insurance.
Should you have more than one life insurance policy?
There are two main types of life insurance cover which are known as whole-of-life and term policies. There are some subtle but significant differences to these policies:
Whole-of-life insurance policy
As the term suggests, a whole-of-life insurance policy will ensure your spouse, partner or dependents receive a payment on your death. You will typically pay premiums throughout your life. However, many life insurance companies will cease charging premiums in your 80s or 90s but still maintain life cover.
Term life insurance
Term life insurance is traditionally taken out to provide payment for a particular financial liability such as a mortgage. The policy is often created to mirror the ever reducing capital of a repayment mortgage. So, on a £100,000 mortgage, your initial life cover would cover the full mortgage and gradually reduce to no cover after the final mortgage repayment. The premiums paid would take into account your ever-decreasing liability.
Nothing is stopping you from having multiple life insurance policies if you wish. You may want to have term life insurance to cover any mortgage liabilities left upon your death, and a whole-of-life policy covering you beyond your final mortgage payment.
What are the options for multiple life insurance policies?
The fact you are looking to take out an additional life insurance policy indicates that you require increased financial cover on your death. Many life insurance companies will allow you to adjust an existing policy. You may find that an increase in existing premiums is cheaper than taking out a new life insurance policy. There are various issues to take into account when calculating life insurance premiums:
- Age
- BMI
- Smoking
- Medical history
- Mental health
- Family medical history
- Occupation
- Hobbies
- Travel
- Substance use
So, if you do require additional life insurance cover, it would be sensible to approach your existing provider about adjusting cover and premiums. Then compare this with any new policy premiums.
Can I take out life insurance on someone else?
Many people will be surprised to learn that you can take out life insurance on someone else, but there are conditions. You would need to prove you had an “insurable interest” such as a spouse, partner, dependent or a joint financial liability, such as a mortgage. Other scenarios qualify, such as a business partnership or tax planning for a potential inheritance tax bill. It is advisable to take professional advice when looking to take out life insurance on someone else.
How many life insurance policies can a person have?
In theory, it is possible to take out any number of life insurance policies both with the same insurance company and separate entities. However, it is also essential you appreciate the financial aspects of numerous life insurance policies. Could the cumulative premiums be less if you were allowed to adjust an existing policy? Holding policies with multiple companies could lead to administration problems on your death. You may also get to a stage where affordability becomes an issue, and the cost of cumulative premiums is impacting your standard of living. You must find a balance.
Will I need to disclose existing life insurance when making a new application?
When applying for a new life insurance policy, insurers will ask you to disclose existing cover. While taking out multiple policies is allowed, this may prompt additional questions from the insurer. If they believe the combined life insurance is high for your situation, you may need to justify the level of cover. While not usually a problem, insurance companies reserve the right to reject your application if they have any concerns.
Summary
The law is clear when it comes to life insurance policies. There are no restrictions on the number of policies you can take out. In many cases, there will be benefits from adjusting existing policies to increase life cover. However, due to age and lifestyle considerations, you may not be able to change an existing policy, or it may be cheaper to take out a new policy. These are all factors which you should consider in line with your regular financial reviews, and take professional advice where applicable.
