Can I Take Two Life Insurance Policies?

Term insurance is undeniably a cornerstone in ensuring the financial well-being of the policyholder’s loved ones in the tragic event of the said person’s demise. However, a question that often emerges in the minds of prospective policyholders is this — "Why consider multiple term insurance plans?"

While most of us are content with having a singular safety net, it’s certainly worth considering what advantages could one possibly derive from having more than one. If you've ever pondered, "Can I take 2 term insurance plans?" or "Can you have two life insurance policies?” you're not alone in this quest for clarity!

This article delves deep into the realm of holding multiple term insurance policies, highlighting the benefits and answering your pressing queries regarding this facet of financial planning.

Can I Take 2 Life Insurance Policies?

Indeed, taking out two life insurance policies is not only permissible but can also be strategically beneficial to meet varying insurance requirements.

Contrary to popular belief, there is no hard and fast rule stating that the same beneficiary must be nominated across all insurance plans. In fact, diversifying beneficiaries can be a prudent move to ensure a broader distribution of the financial safety net upon the unfortunate event of the policyholder's demise.

Moreover, a policyholder isn't confined to designating just a single individual as the beneficiary for a given policy. Many insurance plans provide the flexibility to allocate the policy benefits amongst multiple beneficiaries. This feature allows the policyholder to proportionally distribute the sum assured to different family members or entities as deemed appropriate.

Benefits of Obtaining Multiple Term Insurance Policies

Having more than one term insurance policy can offer multifaceted benefits tailored to meet changing life situations and responsibilities for UAE residents.

Let's take a look at some of the advantages of maintaining multiple term insurance plans -

Adapting to Evolving Responsibilities and Needs

As we journey through life, our responsibilities often intensify. 

Consider Rashid, who, at the age of 27, might have minimal liabilities, perhaps limited to a student loan or a car loan. Given this, substantial insurance coverage might not be imperative. Fast forward to age 40, Rashid's scene might change dramatically: a family, possibly kids, a housing loan, or even a business venture. 

Additionally, unforeseen circumstances, like an illness forcing his spouse to quit their job, can increase his financial burdens. The initial coverage that seemed sufficient at 27 might fall short now. Here, an additional term insurance policy can bridge this coverage gap, so that Rashid can be more financially stable.

Strategically Distributing Risks and Maturity Dates

Let's consider Akram, a 30-year-old UAE resident. He takes out an AED 2 million term insurance policy lasting until he's 65. This amount aims to secure his family's future expenses and objectives in his absence. Concurrently, Akram has a housing loan with an outstanding AED 500,000, requiring EMIs for the next 15 years.

To safeguard against this liability, he opts for a second 15-year term insurance policy of AED 500,000. Now, while he could've combined these into a singular AED 2.5 million policy, this would entail paying a higher premium for 35 years, even though the AED 500,000 coverage meant for the loan would be redundant post 15 years. Splitting policies, in this case, is both financially astute and practical.

Backup Against Claim Rejection

While insurance companies usually settle claims when provided with accurate and comprehensive information, anomalies do exist. In the rare event a claim is declined, possessing multiple policies can certainly become a safeguard. 

In this case, even if one insurer denies a claim posthumously, the deceased's family isn't left stranded. They can lean on the second or even third policy's sum assured. In this way, the family isn’t entirely reliant on a single policy and has an added layer of financial security.

Drawbacks of Holding Multiple Term Insurance Policies

While having multiple term insurance policies can serve as a strategic financial safety net, there are some challenges worth considering. Managing several policies can introduce complexities both for the policyholder and their beneficiaries.

Let’s explore these potential pitfalls for UAE residents considering multiple term insurance plans -

Challenges in Policy Maintenance

Juggling multiple term insurance policies naturally implies dealing with several premiums, each with its own due date.

Take the case of Hassan, who has two distinct term insurance plans. Instead of a unified process, he now has to keep track of two different payment dates, amounts, and policy details. If an unfortunate event occurs, his family would be tasked with claiming from multiple insurers, adding to the administrative stress during an emotionally difficult time.

Potential Increase in Overall Costs

The economics of holding multiple term insurance policies can sometimes lean unfavourably.

Consider this: Fatima, at the age of 27, buys an AED 2 million policy for which she pays a monthly premium of AED 1,800. However, let's imagine an alternative scenario.

At 27, she procures a policy worth AED 1 million with a premium of AED 1,200 monthly. Later, at 35, after significant life events like marriage and childbirth, she feels the need for another AED 1 million coverage. This new policy, due to her increased age and potential health changes, demands a premium of AED 1,800 monthly. Consequently, she shells out a combined AED 3,000 every month for both policies.

When assessed in terms of economics, Fatima pays significantly more for the same cumulative coverage amount when divided over two policies.

Forecasting Financial Needs Can be Tricky

One core aspect of insurance is the anticipation of future requirements. While we can make estimations to some degree, predicting life's turns with certainty is implausible. Circumstances evolve, and financial requirements can shift in unpredictable ways.

Although having two separate term insurance policies might seem advantageous initially, it can be a challenging jigsaw if not aligned correctly with ever-evolving life scenarios.

Restrictions of Having Multiple Term Insurance Policies

While the prospect of owning multiple term insurance policies can offer a robust safety net, there are certain constraints to be aware of. One pivotal aspect that surfaces when considering multiple policies revolves around the permissible coverage limits -

1. At its core, the term ‘Human Life Value’ or HLV represents the potential future income of an individual. Essentially, it’s a monetary estimation of the financial loss that someone would incur if a particular individual were no longer around. This concept plays a crucial role in determining the total coverage one can opt for across all insurance policies.
2. Insurance providers, being aware of the HLV, ensure that the cumulative sum assured from all policies doesn’t surpass an individual’s estimated future income. Why is this important? Well, the very foundation of life insurance is to provide financial protection against unforeseen life events, not to become a source of undue profit. By capping the total coverage based on HLV, insurers strike a balance, ensuring that beneficiaries receive fair compensation that mirrors the financial contribution of the insured individual.
3. For those considering additional term insurance plans, it's vital to be prepared for thorough examinations from insurance companies. When an individual applies for a second or subsequent policy, insurance providers will assess the combined coverage in relation to the applicant's HLV. This stringent evaluation ensures that the total sum assured remains within the bounds of the person's projected financial contribution over their lifetime.

Over to You

In the evolving landscape of financial planning, the question "Can I take 2 term insurance policies?" often resounds with keen curiosity. To put it concisely, yes, one can indeed hold multiple term insurance policies and leverage them as strategic tools to cater to various life stages and needs.

By diversifying across multiple policies, individuals can optimise coverage to suit specific life milestones — from purchasing a home to welcoming new family members. However, while this strategy can offer enhanced financial protection, it also brings its own set of challenges and constraints, especially when viewed against the backdrop of Human Life Value (HLV).

The key, as with most things, lies in balancing the benefits against potential pitfalls so that your insurance decisions align with both current realities and future aspirations.