This page was last updated on 1 January 2021.
Can You Have More Than One Life Insurance Policy?
In this helpful article, we discuss the common question: ‘Can you have more than one life insurance policy?’ We also look at why you might or might not want multiple plans, and how more than one plan works logistically.
Topics that you will find covered on this page
You can listen to an audio recording of this page below.
Can you have two separate life insurance policies?
Though uncommon with home and car insurance, having multiple insurance policies is totally legal when it comes to life insurance.
Multiple policies can be a good idea, because different policies cover different scenarios. So, you might want to take out multiple policies to be sure that you are covered in every necessary area.
How many life insurance policies can a person have?
Theoretically, as many life insurance policies as you desire! However, you should only take out life insurance policies that are necessary, given your circumstances.
You should also see if you can find one life insurance policy to meet all of your needs, instead of having many life insurance policies. One policy might be cheaper than having multiple life insurance policies.
Also, if you want multiple life insurance policies, you might have to justify why you need each of the policies. For example, in the application process you may need to detail what you want the policy to cover.
Here is a short video that looks at that question.
Can you have too much life insurance?
Your insurer should always think about your current situation and whether you need multiple life insurance policies. If you fail to fit the criteria of a certain type of insurance policy, they won’t approve you.
That said, you might be eligible for additional life insurance cover but it might not always be the best decision for you. To decide this we recommend that you make sense of the level of cover you need with an expert advisor.
When should you get life insurance?
You should get life insurance when you think you need protection to start. The thing is, it can be tricky to know when this is.
Getting life insurance when you are younger can mean your premium payments will be cheaper. That said, you could be paying premiums for longer. Given that many people won’t ever claim on their life insurance, you could end up paying more even if monthly the cost is reduced.
There might be some types of insurance that you won’t need until later in life, when key life events like having children occur. However, some providers offer discounts for taking out multiple policies at the same time. So, you need to consider if taking them out together is better for you financially.
However, if you choose to get it later in life premiums for your life cover can be very high. Interest rates on the policy could come to a higher amount too! You should only ever take out a policy when you are sure you have found the best life insurance providers for you.
Another issue with taking out an insurance policy later on in life is that you could wait too long. As you age, your risk of death increases. The longer you leave it to take out life insurance, the higher chance there is death will occur when you are not insured.
Why would someone want to take out extra life insurance policies?
Life changes quickly and in unexpected ways. When this happens, the level of financial protection you need to give to beneficiaries can change too. This is when you could decide to take out additional life insurances.
For example, if you get married you could go for a joint life insurance policy. Or, your conditions could change because you have children. These children might not be able to cover funeral costs in the event of your death.
How much life insurance should I have?
The main thing people want their policy to cover is their mortgage. In many circumstances, adults do not pay off their full mortgage until later in life. So, you should ensure your existing policy covers your remaining mortgage debt.
To give you an idea of how much cover this might be, the average owed mortgage in the UK is over £121,500.
Another detail worth checking is whether your one policy would payout enough to cover childcare costs. In the circumstances of your death, your partner will likely need to pay more for childcare than you do now. At the very minimum, your partner will need enough to meet existing care needs.
Finally, some individuals have other debts they are paying off. You probably do not want this liability passed on to someone you love. So your policy should cover the cost of any extra owed debt, too.
Once you have covered these essentials, you can begin to consider your other financial goals. Do you want to give a gift lump sum? Do you want to put aside money for your children for future life events, like a wedding?
You can factor all of these costs into your life insurance cover too. You might also want to bear in mind that the cost of funerals is rising, so loved one’s might need some support with this financial obligation.
How does having separate life insurance policies logistically work?
When you have more than one life insurance policy the terms and conditions of each are not affected by the other. You deal with each one independently.
So, you pay the premiums separately, and each policy ends when the term you initially agreed to end. The interest is the same, and if it is a variable rate it continues to change.
In other words, having more than one life insurance policy in no way changes the terms and conditions you must abide by. In the event of your death, beneficiaries receive payouts from both.
What are the benefits of multiple life insurance policies?
One benefit is that you might want to put one of the policies into trust. This is something you cannot do if you combine things in a joint life insurance policy, since it cannot be separated. Taking out a new policy would, however, allow you to do this.
By writing policies in trust, you can reduce the inheritance tax due when you die. This is because the life insurance policy won’t contribute to your estate once in trust. This means you are less likely to meet the inheritance tax threshold.
Another reason people take out an extra insurance policy is because they have a workplace policy. For example, some people have ‘death in service’ benefits from their employer.
The amount workplace policies cover, though, might not be sufficient to give loved ones exactly what they need. So, you might want to take out an extra plan in order to add to the amount beneficiaries will receive should you die.
If you are in a couple, two separate policies might also be more cost effective than having one joint policy. These separate policies are known as single life policies. To see what is cheapest for you, you will have to compare quotes.
Another benefit of separate single life policies in a couple is that two payouts occur. If you have a joint contract, the policy only pays out when both members of the couple pass away.
Finally, if you need specialist cover for whatever reason, you might be better off getting this separately on a new policy.
What are the drawbacks of having multiple policies?
One disadvantage is that beneficiaries have to make multiple claims in order to get payouts from all the policies. This can be tiring and time consuming, though for many is worth it!
For the policyholder, budgeting might be harder with multiple policies. The payment due dates might be different, and it is simply more to manage. However, you could organise your direct debits to make budgeting easier.
Another thing to think about is whether multiple life insurance policies are really the cheapest option. You will have to carefully shop the market to figure this out, or you can make things easier by getting a professional advisor that is authorised and regulated by the financial conduct authority.
Can I modify my existing life insurance policy or do I have to take out a new life insurance policy?
Only some life insurance companies will let you modify your life insurance policy for it to cover your new needs. However, you may have to pay fees to the life insurance company, even if they do allow this.
If your life insurance company won’t let you alter the one life insurance policy you have, there are a few options.
Firstly, you can take out multiple policies that offer the increased coverage your current conditions demand.
Secondly, it might be time to have a look at new companies. You could find a new one life insurance policy that does offer the coverage you need.
If it has been some time since you took out your policy, the market could have changed. So, you might even get a better deal if you switch your life cover provider. This is called rebroking.
You will need to let the new provider know that you want to end your existing policy. This is so they can calculate everything correctly.