How many life insurance policies can you have?
In reality, there are numerous reasons why you might have more than one life insurance policy including:
- to protect your family in the event of your death
- to cover a loan, such as a mortgage, that will be paid off in the event of your death
- to protect a business partner so that in the event of your death the business can still continue
- to cover any potential inheritance tax liability against your estate in the event of death
However, you can't simply insure yourself for millions and millions of pounds without good reason. When you take out a life insurance policy the life insurance company will, in turn, use a reinsurer to manage the risk. The reinsurers don't deal directly with consumers but instead deal with the insurance companies. A life insurance company won't want to over-expose themselves to any one individual and neither does a reinsurer. It's not how many life insurance policies that is of particular concern but the total amount of life insurance they are liable to pay out if you die.
So when you apply for life insurance the insurance company will likely ask about your existing life insurance policies. Even if you do not disclose your other policies, when the insurance company approaches a reinsurer the reinsurer will check its own records. Don't forget they will be reinsuring for lots of different insurance companies so they will likely find your existing policies. If you didn't disclose the fact that you already have insurance policies which you intend to keep they'd question why and what your motives are which could ultimately mean you will be rejected for the new policy. So it is always best to be honest.
Why you may need to purchase more than one life insurance policy
As you go through life it is best to you will often need to review your life insurance cover. Most people will buy their first life insurance policy when they get married or take out their first mortgage. A policy to cover a mortgage can be reasonably cheap and can be limited to the term of the mortgage. Covering both parties to the mortgage means that the surviving partner's standard of living can be maintained in the event of the premature death of either partner.
The arrival of children, for example, is a point at which you should review your life insurance again to ensure that you are covered for the extra costs involved in raising your children, such as childcare, if one partner was to die prematurely.
If you start up a business with a partner, again you will need to review your life insurance arrangements. The death of a business partner can have a catastrophic impact on a business as not only have you lost a key worker but their part of the business will form part of their estate, causing financial stress on the business. A life insurance policy can offset the financial impact by providing cash to allow the business to continue operating while adjustments are made.
In later life, as you build up assets, you will need to reflect on your potential inheritance tax liability (IHT) that will fall on your estate in the event of your death. If your total assets are over the inheritance tax threshold (£325,000 for 2020/21 tax year) then your estate will pay IHT of 40% on the amount over the threshold. A life insurance policy for the estimated amount of IHT payable can ensure that your beneficiaries receive your total assets free of IHT.
Can I just increase my existing life insurance policy instead of taking out new ones?
In theory you could increase an existing life insurance policy as long as your life insurance company will allow this. In practice, however, it may be advisable to take out more than one policy so that you or your executor are aware of what purpose these policies were originally intended. Also, you may want to put a policy into trust or assign it for some other reason and this would be easier with more than one policy.
In addition, you should not just assume that your existing policy still constitutes value for money. It may be worth checking whether you can replace your existing life insurance policy with a new one with a cheaper monthly premium. This is called rebroking. If you do decide to rebroke your policy, then check the new policy is a like-for-like replacement in terms of level of cover and the circumstances in which it will pay out. Also, make sure when you apply for the new replacement life insurance policy you inform the new insurance company that you intend to cancel your existing policy when your are accepted. That way the insurer will take this into account when calculating how much life insurance you will have which in turn dictates the level of medical evidence they will need from you in order to make a decision.
The best way to find the best & cheapest life insurance policies
I recommend getting in touch with our recommended independent life insurance specialist* as they have the knowledge and expertise to search the whole market and ensure that the quote is the cheapest and best for your personal needs.
Online calculators and comparison sites can only provide guidance, they cannot assess your needs fully, such as understanding your existing cover and whether or not it is suitable. Speaking to a specialist is free and they can provide additional help such as helping with the application process, chasing the insurance company and even helping to put your policy into trust (meaning the policy would pay out quickly without the need for your beneficiaries to pay inheritance tax).
Complete the short form to see whether you can get a better deal on your existing life insurance policies.
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I would strongly suggest that you have get in touch with our recommended life insurance specialist*, it is completely free and I have personally vetted their service which is why I recommend it.
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