Can I have multiple life insurance policies?
September is Life Insurance Awareness Month.
Though life insurance is important to discuss at any time of the year, some features of life insurance go beyond standard conversations.
A common question I get is ‘I have a collection of life insurance policies picked up down the years, can i have multiple life insurance policies?’
Yes, you can have multiple policies at once.
One policy is sometimes considered enough, but that may not always be the case.
Below we are outlining some situations that may call for multiple policies.
This information is designed to provide scenarios where additional policies could be beneficial and does not constitute advice.
Your First Life Insurance Policy
Normally, if you have a mortgage, you have purchased mortgage protection, typically from your bank.
Mortgage protection is just a label for a life insurance policy that the level of cover decreases over time as the mortgage reduces.
This would usually be your first life insurance policy.
When Would You Hold Multiple Life Insurance Policies?
Life insurance is designed to provide a lump sum to beneficiaries in the unfortunate event of a policy holder’s passing.
However, a single policy may not be enough to cover all of the expenses of the modern family.
For example, once the mortgage is clear, there are other ongoing living expenses that continue for a family.
Purchasing a second policy is an option for those that require additional coverage.
It provides greater protection for loved ones and that is the largest benefit to this approach.
However, paying for multiple policies can be expensive, they can add up.
Here are some situations that may call for the a second policy.
Lifestyle Changes
The birth of a child, changes in employment or a new relationship are all examples of life changes we may think of when considering life insurance coverage.
But another factor to consider is personal lifestyle changes, especially those that involve your health.
If you’ve made healthy changes, then a new policy may cost less than before.
An example of this could be if you’ve stopped smoking.
Smokers can pay up to twice the cost of non-smokers for life insurance.
As situations change, so do the monetary needs of those around you. Consider this when examining the needs for life insurance.
Age
Average family income decreases as the head of household reaches retirement age.
As you get older, the requirement for cover decreases.
You typically no longer have a young family financially dependent on you.
Life insurance on the other hand can move in the opposite direction, increasing as one grows older if indexation has been added to the policy.
So as you get older, your need for cover goes down, yet your life insurance cover could be going up!
For this reason, it’s typically best to establish a plan at a younger age.
Consider your current expenses to determine whether this will be necessary.
Asset Accrual
Some financial goals will require long-term payment plans.
Assets like cars and homes can take a while to pay off, increasing your monthly expenses by a specific amount for a given period.
Depending on your situation, a second life insurance policy can help account for these added liabilities.
This then provides an additional lump sum to clear these assets.
Tracking Policies
Multiple plans may provide more coverage, but be sure to keep track of each policy and costs.
Premiums alone individually may appear inexpensive but when added together they can be quite expensive.
If a claim arises, to ensure as little additional stress as required for your family at an emotional time, be sure to establish proper information to track any new and existing policies.
Whether you need more than one insurance policy depends on your unique financial and personal situation.
We can help you determine what coverage is right for you.
Summary
It’s normal to have more than one policy, particularly if you’ve dealt with a few banks or life insurance salesmen in the past.
First and foremost you should have your mortgage protection policy.
This ensures the mortgage is clear should you pass away.
Secondly, you should then have a personal life insurance policy.
This ensures your family receive a lump sum should you pass away to replace your future earned income.
Dependant on your personal circumstances, there could be other smaller incremental policies.
Can We Help?
Of course we can. We’d be happy to.
Have you accumulated various policies in the past either through banks or salesmen?
If so, check out our second opinion service here.
We will summarise these for you, are you paying too much, are you over insured, under insured, do they have illness cover attaching etc.
We will also provide you with a simple, easy to read summary that will be ideal for your file.
Francis McTaggart CFP® SIA RPA QFA
Disclaimer: All content provided in these blog posts is intended for information purposes only and should not be interpreted as financial advice.
You should always engage the services of a fully qualified financial planner before entering any financial contract.
Fortitude Financial Planning Ltd will not be held responsible for any actions taken as a result of reading these blog posts.
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