The answer to this question quite simply is Yes! In fact, there are a number of scenarios for which a person would be better off having multiple life insurance policies. The question is understandable because we're all so accustomed to other insurances like home and car insurance where you have one policy in force at a time. In the world of life insurance, a person can arrange as many policies as is justified by his or her needs. In this article we'll look at:
- Why might you want to arrange more than 1 life insurance policy?
- Will I need to attend a medical for extra life insurance?
- Is it cost effective to have multiple life insurance policies?
- What are the advantages of having more than 1 life insurance policy?
- How to buy the best life insurance at the cheapest price
Why might you want to buy more than 1 life insurance policy?
As life changes and you either take on more debt or as your family grows, you may decide that you need more life insurance. Another reason for wanting more life insurance is so that you can leave the various life insurance policies to different people, which may help to avoid disagreements in the event of your death. You might just be thinking that the life insurance you took out years ago won't be enough if you were to die prematurely.
Whatever your reason for wanting more life insurance, you should review your existing policy before you just cancel and replace it. In many situations, it would be better and cheaper to buy a top-up life insurance policy instead of a replacement one.
Reasons for buying additional 'top-up' life insurance:
Your age has increased - replacing an old policy that you started when you were younger could mean that it will cost you more. A new policy will be calculated using your current age and life insurance gets more expensive as you get older. Keeping your old policy in place and starting a new policy for the extra insurance that you need could work out to be cheaper, as you'll only pay the higher rate for your current age on the additional policy, retaining the cheaper rates on the old policy.
Your health has changed - if your health changes, you do not have to disclose this on a policy that you bought before your health changed. Keeping your old policy could allow you to retain the more favourable terms you have. If your health means that the premium for your new life insurance will be increased, you can limit this to just the additional amount of insurance that you need. Overall, you may end up paying less this way.
You're now a smoker - if you were a non-smoker when you bought your old policy, the rates will have been almost half of what you might pay on a new policy. If you need more life insurance, it would be better to buy a new policy for the additional amount, instead of starting a whole new policy to replace the old policy. You don't have to disclose a change to your smoker status for your existing insurance as long as you were a non-smoker at the time that you bought it. The overall cost will be less this way. Do remember that if the reverse is true and you were a smoker at the time you bought your original life insurance but you haven't smoked for at least 12 months, you can declare this and ask that your monthly premium is adjusted in accordance with this.
Your new insurance is needed for a different number of years - often people want to protect against different needs. Let's assume you have a mortgage and children to consider. Ideally, you would want to ensure there is enough money to pay off your mortgage should you die, as well as leaving some money for your family to carry on raising the children until they are grown up. These two needs might not run for the same number of years. Your mortgage could have 20 years left to run but your children will have grown up in 10 years. You don't want to have to keep paying for the life insurance for your children for an extra 10 years but by the same token, you don't want your mortgage to be unprotected for the last 10 years. In this kind of situation, it could be better to buy 2 separate policies, matching each to the specific need it protects. This way, when the children have grown up, the cost of that life insurance policy will stop and you'll only carry on paying for the mortgage life insurance.
You want to keep some of your financial affairs separate - many people want to ensure that there are no financial squabbles amongst their family and friends after they die. Although you can split the benefits from your life insurance policy amongst different people by allocating a trust to it, some people prefer to arrange separate policies. This could be a simpler and more confidential way to ensure the people in your life get what they need without them needing to confer.
You don't want to put all your eggs in one basket - even though most large and reputable life insurance companies will have no problems in paying your claim, you might not want to rely on just one. Some people will want to put policies in place with different insurance companies in order to spread any risk. There is no real need to do this as insurance companies overall do pay in excess of 95% of claims. Of course, it is down to personal preference and some people will feel a little more comfortable with things arranged this way.
Will I need to attend a medical to buy additional life insurance?
Life insurance applications generally ask you whether you'll exceed a certain level of insurance overall. This is because higher levels of insurance can trigger a request for you to undertake a medical examination or further financial evidence. Usually, you can insure in excess of £1 million overall, without triggering these requests. These kind of requests are more likely to be triggered at lower levels for other insurances like Critical illness insurance.
Is it cost-effective to have multiple life insurance policies?
It is worth noting that all life insurance premiums include a nominal charge for the administration of the policy. The more policies you buy, the more administration costs you pay. You might find that the additional administration costs are less than what it would cost to arrange one policy.
It is worth speaking to a specialist life insurance adviser* to help navigate the process for efficiency and to maximise cost savings.
What are the advantages of having more than 1 life insurance policy?
- Keep your costs down by arranging what you need over the appropriate number of years instead of adding it all together and taking it for the longest time needed.
- Keep your financial affairs organised and separated by allocating policies to the people you want to benefit if you die.
- Retain the cheaper rates that you are fixed for your existing policy by arranging an additional policy to top it up instead.
What are the disadvantages of having more than 1 life insurance policy?
- A new life insurance policy will be priced at your current age and using your existing health and so it may be expensive (when compared to your existing policy)
- Every policy you buy includes a nominal administration charge and so the more policies you have, the more you pay in administration costs
How to buy the best life insurance at the cheapest rates
Although this article will have given you some food for thought when it comes to topping up your life insurance, it can be difficult to work out what is best for you. It isn't always simple and you can end up paying more than you need and not achieving what you wanted without some expert guidance.
For this reason, we would suggest that you speak to a specialist life insurance adviser who will be able to guide you to the best solutions after taking all of your considerations on board. We have vetted the services of a specialist life insurance broker* where the advisers are trained to provide regulated advice in order to help you arrange life insurance as well as critical illness insurance and income protection. The advisers are extremely well versed in how applications work and how to avoid unnecessary extra costs to achieve your life insurance goals. You'll also receive bespoke trust advice that allows you to nominate beneficiaries and mitigate inheritance tax from payouts in the event of your death.
To arrange a callback from an adviser, complete this form*. The adviser will call you to understand what you're trying to achieve and you'll speak to the same adviser throughout the process.
Additionally, as a Money to the Masses reader, you'll receive £50 cashback when you buy your life insurance.
If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. This link can be used if you do not wish to help Money to the Masses and do not wish to qualify for the cashback referred to in the article
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