It's a question many ask and in theory, there is no limit to the number of life insurance policies that you can have. Although, there are other restrictions to be aware of which I explain in this article.
Why multiple policies could be right for you
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 pay for your funeral arrangements
- 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
While some people will choose a sum of insurance over a particular term (number of years) thinking it will do all of the different things that will be needed if they die, most people recognise that some of their reasons for having life insurance will be different in nature and one life insurance policy may not suit.
Can you have life insurance with more than one company?
Yes, 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 you have that are of particular concern but the total amount of life insurance they are liable to pay out if you die.
When you need to disclose details of existing life insurance policies
When you apply for life insurance, the insurance company will likely ask if you have life cover in excess of certain amounts - you're normally required to disclose your existing life insurance policies if the total value exceeds £1million to £1.5million if it is life insurance and around £750,000 if you're applying for critical illness insurance. You don't have to tell the insurer about existing life insurance policies that will be replaced with your new life insurance, only those that you will keep and exceed the stated amounts in your life insurance application.
Withholding details of existing life insurance will usually be revealed in the event of a claim so there is no point in not telling the insurer about these. Any misrepresentations at the application stage could jeopardise a claim. It is worth bearing in mind that some people will have good reasons to buy high-value life insurance and the insurance company will ask you for evidence to support this.
As long as your financial affairs justify the amount of life insurance you are buying, there is no reason why you cannot have more than one life insurance policy.
Can you claim two or more life insurance policies?
Yes, if you die and you have multiple life insurance policies covering you at the time, a claim can be made against all of them. Your life insurance policies can be with one insurer or more than one insurer, it doesn't make any difference.
Your family or beneficiaries will be required to complete a claim form and provide death certificates to each insurance company separately. This can make the claim process more laborious for those left behind but it won't change the outcomes. The money should still be paid out from every life insurance policy in force at the time of your death as long as you meet the qualifying criteria for a claim - health records are usually checked at this point to ensure that you disclosed your health and other details truthfully at the time of application.
Why you may need to purchase more than one life insurance policy
As you go through life, your responsibilities change as well as your priorities, often requiring you to review your life insurance cover. Most people will buy their first life insurance policy when they start a family or buy a home and take on their first mortgage.
As time goes on, we may wish to cover more aspects of our lives - funeral costs, inheritance tax, a larger mortgage.
Simply lumping all of the different reasons for life cover together would mean that you would have to choose the longest number of years needed to make sure that everything was covered.
Could multiple life insurance policies be right for your circumstances?
Here is one example of when multiple policies might be right for you:
Person A who is 40 years old, a non-smoker and in good health wishes to cover the following:
- A repayment mortgage that has an outstanding balance of £250,000 and 30 years left before it is repaid
- The cost of living for their dependents who are 11, 12 and 16 years old at £25,000 per year until the youngest reaches age 21
- Debts to the value of £50,000 which will be repaid in 7 years
Life insurance solution based on buying a single policy to cover all your needs
One life insurance policy to cover all of Person A's needs:
- A level term assurance for £550,000 over 30 years will cost around £45 per month amounting to £16,200 over the 30 years.
Total cost = £16,200
Life insurance solution based on buying multiple policies
Life insurance policies that cover each need for Person A separately:
- £250,000 mortgage decreasing life insurance over 30 years will cost around £15 per month amounting to £5,400 over 30 years
- £25,000 family income benefit life insurance over 10 years will cost around £10 per month amounting to £1,200 over 10 years
- £50,000 level term life insurance over 7 years will cost around £10 per month amounting to £840 over 7 years
Total cost = £7,440
Clearly, the single policy solution will provide you with more life insurance because you are adding up all the cover you need and taking that over 30 years but you have to ask yourself whether you need that much cover for the full 30 years. If you live a long life, you'll have paid much more than you needed to ensure that your main concerns were covered.
There is no investment value to these types of life insurance so you won't get any money back so it usually makes sense to simply cover what you need. A life insurance specialist* can provide you with all the help you need to work out what you need and how to arrange your life insurance in the most cost effective way.
Reasons to have multiple life insurance policies
A policy to cover a mortgage can be reasonably cheap and can be limited to the term of the mortgage. Where the mortgage is arranged on a repayment/capital and interest basis, you can opt for the type of life insurance policy that reduces as your mortgage balance reduces, making it cheaper. You can choose between joint life insurance or single life insurance whether you're taking on the mortgage alone or with another person. Covering all 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 the 2022/23 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 for. Also, you may want to put a policy into a 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 you 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.
If you want to buy multiple life insurance policies to save money and assign your life insurances to the specific people and needs that you have, a specialist life insurance adviser will help you to arrange this. They are trained to understand your needs and make recommendations that will be suitable for you.
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).
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