Why Have More Than One Life Insurance Policy?
Life insurance is more flexible than most people think. It can (and should) be adjusted over time to suit your changing needs, and it can be structured in a number of different ways. It is possible to hold multiple life insurance policies in Australia, and there are a few reasons why you might want to do so.
Extra layer of protection
Many people have life cover through their super, but the benefit amount of that policy still leaves them underinsured. By purchasing an additional policy, you can add another layer of financial protection to suit your needs.
Value for money
Life insurance through super is often restricted, and may not be able to offer the same range of benefits that a standalone policy can. You may also find that your current life cover policy outside of super doesn’t quite tick all the boxes. Sometimes you can get the cover you want by combining policies, either from the same insurer or different ones.
A popular reason for multiple life insurance policies is to cover a specific financial need through a specific policy. For example, you may wish to take out a policy just to cover your mortgage, which can be cancelled when the mortgage is paid off. Some expenses, such as your children’s education, may only be relevant for a set period of time. You may want a policy that ends when they reach an age where they are likely to be financially independent.
Similar in concept to silo coverage, you could also take out a policy to cover your loved ones and a policy to cover a business. This protects both your dependents and your business partners, so neither will be forced to change their lives dramatically due to a financial loss.
Maintain low premiums
The younger you are when you take out life cover, the lower your premiums are likely to be. By taking out life cover at a young age, you can essentially lock in low premiums. However, the flip side of this is that if you want to increase your benefit level as you get older, your premiums will go up as well. Adding an additional life policy could be a cheaper way of managing your cover.
Having multiple life insurance policies is a way to combine different types of cover. For example, you may wish to hold both life insurance and income protection insurance, which is actually a type of life cover. Pro tip: insurers will often offer a discount if you get more than one policy type with them.
What You Need to Know About Multiple Life Insurance Policies
While you are legally allowed to hold multiple life insurance policies, there are a few things you should be aware of first.
Disclose your policies
The number of policies you have isn’t the issue; it’s the total amount you’re insured for. Before applying for multiple policies, let your current insurer know that you are doing so. You’ll also need to disclose your existing policies on any new application. If you don’t do this, an insurer could have grounds for refusing to pay a claim.
Avoid being over-insured
The reason insurers want to know about your total benefit level is so that they can adequately assess your application. You can’t over-insure your car, wreck it, and then claim for more than it’s worth. The same goes for life insurance.
If you’re insured for an amount that exceeds your current financial situation, an insurer can consider you over-insured. That means they may not pay out the full claim amount. Life insurance isn’t like winning lotto; it isn’t supposed to increase your loved ones’ financial situation, but to maintain it.
Read the PDS
All life insurance policies will have a Product Disclosure Statement, or PDS. This document may not be a thrilling read, but it’s an important one. It contains the terms and conditions of your policy, and it will let you know if there are any restrictions on holding multiple life insurance policies.
Life insurance in super
Life cover in super is considered a group policy, because the fund buys it in bulk for members. These policies are usually not underwritten at the time you apply, so it’s important to check the PDS to be sure you can hold multiple policies. You should also check the PDS regularly, because the terms and conditions of group policies can change.
Claim processing time
When you hold more than one life insurance policy, it can take a little bit longer for a claim to be paid out. It’s simply because the insurer needs to cover their bases before paying out the claim, which means checking on your other policies.
Inform your beneficiaries about multiple policies
If you die and a claim needs to be made, it is your beneficiaries who will likely be making it. However, they can’t make the claim if they don’t know the policy exists. This is especially relevant in the case of multiple policies. Let your beneficiaries know which policies they should claim on, or they may not realise they can claim a benefit.
Making a claim
As long as the claim is legitimate and you meet the requirements of your insurance policy, all of your life insurance policies should pay out. You must have disclosed all the required information and have met the terms and conditions of each policy.
If you’re not sure how to manage your life cover policies, it can help to speak with a financial advisor. A professional advisor can give you tailored advice based on your situation, and may even give you tips you hadn’t considered.
Types of Life Insurance
You can hold multiple term life insurance policies, but there may be restrictions on holding more than one trauma, TPD, or income protection policy. For example, if you hold two income protection policies, the combined maximum benefit is typically around 75% of your income. Once again, this is because life insurance is not intended to improve your financial situation.
However, there can still be a benefit in holding two income protection policies, as long as the waiting and benefit periods compliment each other rather than overlap.