Life Insurance: Extra Cover, Extra Worth?

Life insurance is a financial safety net for your loved ones in the event of your death. While it can't replace you, it can help relieve future financial pressures. In the UK, there is no legal limit to the number of life insurance policies you can have. However, it's important to consider the costs and benefits of taking out multiple policies.

Having multiple life insurance policies can bring peace of mind, especially if you have a variety of financial commitments, such as a mortgage, children, or a growing family. It can also be beneficial if you want to provide a financial safety net for your family or if your circumstances change during the policy term.

However, having multiple policies can be expensive, with higher premium costs, and may require more effort to manage and keep track of. It's crucial to assess your needs and circumstances before deciding whether to take out extra life insurance.

Peace of mind

Financial Protection for Loved Ones

Multiple life insurance policies can ensure your loved ones receive a financial payout in the event of your death. This payout can help cover day-to-day expenses, funeral costs, or any other financial needs they may have. This extra layer of financial protection can provide reassurance that your loved ones will be taken care of, even when you're gone.

Adjusting to Changing Circumstances

Life circumstances can change over time, and extra life insurance policies can provide flexibility to adapt to these changes. For example, if you take on a larger mortgage, have children, or start a business, an additional policy can ensure your loved ones have the financial resources to manage these commitments if something happens to you.

Meeting Specific Needs

Different types of life insurance policies can serve different purposes. For instance, you may have one policy to cover your mortgage and another to provide income protection if you become unable to work due to illness or injury. This allows you to tailor your insurance coverage to your specific needs and provide peace of mind that all aspects of your life are protected.

Covering Inheritance Tax

Whole-of-life insurance policies can guarantee a payout when you die and can be used to pay any inheritance tax. By setting up this type of policy in trust, the payout can be kept separate from your estate, reducing the inheritance tax burden on your beneficiaries. This ensures that more of your estate goes to your loved ones, providing peace of mind that you are maximising their financial security.

Adjusting Coverage Over Time

Taking out multiple life insurance policies at different stages of your life can help you adjust your coverage as your circumstances change. For example, you may increase your coverage when you get married, have children, or move to a more expensive home. Extra policies allow you to customise your coverage to match your evolving financial responsibilities and provide peace of mind that your loved ones will be protected throughout your life.

Cost

The cost of extra life insurance is a key consideration when deciding whether to take out multiple policies. While there is no legal limit to the number of life insurance policies you can hold, the more cover you have, the higher your premiums will be. This means that maintaining multiple policies can become expensive, especially if you are paying for cover that you do not really need. It is important to carefully consider your financial situation and the level of cover you require to ensure that you are not over-insured.

Insurers will also take your age and health into account when calculating the cost of additional policies. The older you are, the more expensive life insurance becomes. Similarly, if your health or lifestyle has deteriorated since you took out your original policy, you may find that the cost of extra cover is higher. However, if your health has improved, for example, if you have given up smoking, you may find that the cost of a new policy is lower.

It is also worth noting that life insurance policies have no cash-in value. If you reach the end of the policy and no claim has been made, the policy will end, and you will not receive any money back. Therefore, it is important to ensure that you can afford the premiums for the duration of the cover.

If you are considering multiple life insurance policies, it is a good idea to speak to a specialist life insurance broker to get professional advice and ensure that you are making the right decision for your circumstances.

Flexibility

Life insurance policies can offer a great deal of flexibility, allowing you to adjust your cover to your changing circumstances over many years. This is especially useful if you have a growing family or if your financial situation changes. For example, you might get cover for your mortgage that you increase as you move to a more expensive home. You can then take out a separate life insurance policy when you start a family or set up your own business. As you move into later life, you may want to ensure your funeral expenses are covered or take out a policy to pay an inheritance tax bill.

If you need additional cover, it’s always worth checking with your existing provider first. They may be able to increase the amount they will insure you for, and most insurers will increase or decrease the term of the policy as well. However, if your existing insurance isn’t right for your new circumstances, then it may be worth shopping around for the most suitable cover.

You can also have different types of life insurance policies for different circumstances. For example, you might have mortgage protection insurance in place to cover your mortgage if you die, but you might also want to take out a separate policy that provides for your children until they reach adulthood.

You can also have multiple life insurance policies with the same company or with different providers. Either way, you must declare to all involved how much life insurance you are seeking in total – to make sure you are not over-insured or that one insurer has gone above their internal limits per customer.

Meeting a specific need

Life insurance is an excellent way to help support your family financially when you die. It gives your loved ones a lump sum when you pass away or if you’re diagnosed with a terminal illness. You can have different life insurance policies for different circumstances.

• Paying off your mortgage: You might want to take out a decreasing term life insurance policy where the payout falls with your outstanding mortgage payment.
• Covering day-to-day living expenses: You might want to ensure your surviving partner or family has a lump sum or a replacement income (family benefit policy) in the event of your death.
• Protecting your income: If you can no longer work due to illness or injury, income protection insurance provides a tax-free monthly income.
• Paying for your funeral: You may want to ensure you've got your funeral expenses covered.
• Paying an inheritance tax bill: Whole-of-life cover guarantees to pay out whenever you die. If you put the plan in trust, it can be used to pay any inheritance tax as the payout won't be part of your estate.

Meeting a financial goal

Peace of Mind and Financial Protection:

Extra life insurance can provide peace of mind and help you meet financial goals by ensuring your loved ones are taken care of financially if something happens to you. This is especially important if you have dependents or financial commitments, such as a mortgage or private school fees for your children. Multiple policies can ensure that your family has enough money to cover day-to-day expenses, pay off debts, and maintain their standard of living.

Flexibility and Adjustability:

Life circumstances can change over time, and extra life insurance policies offer flexibility to adjust your coverage accordingly. For example, if you move to a bigger home with a larger mortgage, get married, have children, or start a business, you may want to increase your coverage. Multiple policies allow you to tailor your insurance to these changing needs without having to rely solely on a single policy.

Meeting Specific Financial Needs:

Extra life insurance policies can help meet specific financial needs that a single policy may not cover adequately. For instance, you can have separate policies for paying off your mortgage, covering daily living expenses, protecting your income in case of illness or injury (through income protection insurance), and ensuring enough funds for funeral expenses. This way, you can ensure that each aspect of your financial life is adequately protected.

Inheritance Tax Planning:

Extra life insurance can also help with inheritance tax planning. By setting up a policy in trust, you can ensure that the payout is kept separate from your estate, reducing the inheritance tax burden on your beneficiaries. This allows you to preserve more of your wealth for your loved ones.

Cost and Affordability:

When considering extra life insurance, it's essential to weigh the costs carefully. Multiple policies mean higher premiums, so ensure that you can afford the long-term financial commitment. Additionally, be mindful of potential drawbacks, such as increased administration and the need to disclose all existing policies when taking out new ones.

In conclusion, extra life insurance policies can provide valuable financial protection and help you meet specific financial goals. However, it's important to assess your personal circumstances, consider the costs, and ensure that the level of coverage is appropriate for your needs without being unnecessarily excessive.

Frequently asked questions