Is It Legal to Have Multiple Life Insurance Policies in Australia
One of the most common questions people ask about multiple life insurance policies is whether it's legal. Yes, it is legal to have more than one life insurance policy in Australia. You can purchase as many policies as you like, if it’s justified, and you fully inform all insurers of your existing coverage.
While life insurance companies will generally not care how many policies you have, they may look more closely at the total amount of benefits you have, i.e. is it reasonable for a person with your expected income and circumstances. Depending on the amount of coverage you want, an insurer might require you to get a medical exam.
Because life insurance is a wonderful way to spare your loved ones some of the pain of losing your income and support we tend to want more of it. Before you find yourself contacting a life insurance company for additional cover, make sure it's justified and that you can afford it in the long run.
For example, let's say you purchased a life insurance policy in your 20’s that will be enough to pay for your final expenses and unpaid medical bills. Now, in your 30s you’ve bought a house and started a family and need additional insurance to protect against underinsurance. You might purchase another life insurance policy to cover the cost of your mortgage and support your family to maintain their current lifestyle.
However, be careful that you are not overinsured because then your loved ones may not receive the full payout, and the premiums you've been contributing will be a waste of money. Life insurance is not meant to enrich the recipient, whether that be you or your beneficiaries.
When applying for life cover, the insurer will generally ask:
- If you have any existing policies on your life,
- The value (cover amount) of these policies, and
- Whether you’ve ever been denied life insurance and if yes why
Can you have more than one income protection policy?
Yes, you can generally have two income protection policies. However, income protection insurance has built-in offset clauses. Meaning, the combined maximum benefit you can receive from all your policies is generally limited to 75% of your income because you cannot be better off disabled. Otherwise, you might not be motivated to recover and return to work.
Nevertheless, you can have two income protection policies with complimentary waiting and benefit periods. For example, if you have an income protection policy in your superannuation fund that has a 30-day waiting period and 2-year benefit period, you can purchase additional income protection coverage with a 1-year waiting period and benefit period that continues until your age 65.
Why have multiple life insurance policies and do you need it?
Significant life changes are usually the biggest trigger for Australians wanting more life insurance cover, for example, you’ve gotten married, started a family, bought a house or changed jobs. Another reason might be that your employer offers group life cover, but it falls short of what your family will need should something happen to you.
You might also require additional coverage when starting a business to cover fixed business costs; this is usually called keyman insurance.
Many people purchase life insurance in layers. When you're single and starting your career, you'll usually buy a small amount of cover, and then add additional insurance as your needs change and your ability to afford cover increases.
Before applying for multiple insurance policies, you might want to consider:
- Your budget. Can you afford to keep up with the premiums? Make sure to check whether your policy has stepped or level premiums.
- The payout may take longer. Your beneficiaries may have to wait longer for a claim to pay due to the excessive processing required. A separate claim form must be completed for each insurance company.
- Unclaimed benefits. With multiple policies, your loved ones may not be aware of them all, which can result in benefits remaining unclaimed.
- Group policies are generally not underwritten at application time. If you have a personal life insurance policy and another under a group scheme, make sure to check the PDS and documents of the group fund to make sure they permit holding multiple death cover benefits.
- Policy management. Having more than one life insurance policy might require a bit of juggling. You'll usually have to conduct a yearly review of each policy to ensure your personal details are still the same, your cover amount is sufficient, and your beneficiary details are still relevant.
- Risk of overinsurance. Make sure your need for more cover is justified. If you are overinsured you’ll usually forfeit the cover that is more than the lost income you are replacing.
Alternatives to having multiple life policies
Purchasing additional life insurance policies from different insurers is not the only way to ensure you have sufficient coverage, you could also:
- Choose a term life insurance policy that is guaranteed renewable and increase your existing cover without providing additional information or undergoing a medical exam.
- Combine policies, which allows you to take out multiple cover types. Purchasing multiple policies, for example, life insurance and TPD, through the same insurer may qualify you for a bundle discount.
- Double TPD is a benefit of combined life and TPD policy, allowing you to immediately reinstate the portion of life cover that was reduced due to a total and permanent disability claim.
- Double trauma is available in a combined trauma and life policy. You can reinstate the portion of life cover that reduced due to a trauma claim payout.
- Trauma reinstatement provides you with the opportunity to re-purchase trauma cover, usually 12 months after a claim has been paid out for a critical illness listed in the insurer's PDS.
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Buy Back options on your Life Insurance Policy can be a built in benefit or you can generally add this option on your bundled policy at an additional cost.">
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