Can I have more than one income protection policy?
Yes. You can have more than one income protection policy. But having two policies doesn’t necessarily mean you’ll receive twice as much if you make a claim.
Insurers limit the amount of your income you can protect, so they’ll want to know about any other income protection you already have when you apply.
Why would you have two income protection policies?
There are plenty of reasons why you might end up with more than one policy.
You may already have cover through an employer and decide to arrange some additional protection yourself. Or perhaps you took out personal income protection years ago and have since started working through your own limited company.
You might also want more cover after your income increases without giving up an older policy you’re happy with.
In each case, keeping the existing policy and adding another one may be an option.
Income protection isn’t like life insurance
You can own several life insurance policies and, in principle, each can pay its insured lump sum following a valid claim.
Income protection doesn’t work in quite the same way. It’s there to replace some of the income you’ve lost because you can’t work.
Taking out a second policy doesn’t allow you to insure the same earnings twice and receive more than the insurers’ permitted level of benefit.
This is why your earnings and existing income protection are checked when you apply.
How financial underwriting works
Medical underwriting deals with your health. Financial underwriting deals with how much you earn and how much cover you can have.
An insurer may ask about:
- your earnings;
- how you’re paid;
- other income protection policies;
- any sick pay you receive through work; and
- the monthly benefit you’re applying for.
For a company director, salary and dividends may both come into the calculation. The insurer may also ask to see company accounts or other evidence of earnings.
For more information on director remuneration, read our guide to salary vs dividends for income protection.
Can you claim on two policies?
You can make a claim on both policies, but don’t assume you’ll get the full amount from each one.
The insurers will look at how much you were earning before you stopped work and what you’re receiving from elsewhere, including the other policy and any sick pay.
So having two policies doesn’t necessarily mean you will receive full payouts.
Do you have to tell the insurer about your other policy?
Yes. If you’re asked about existing income protection when you apply, give the insurer details of the cover you already have.
This allows it to work out how much additional benefit it can offer.
This can include personal policies, employer-provided cover and executive income protection arranged through a limited company.
Can you increase your existing policy instead?
Possibly. Before taking out another policy, check whether your existing cover can be increased.
Some policies allow you to increase the benefit after certain events without going through full medical underwriting again. With others, you’ll need to make a new application.
Your health matters here. If you’ve developed a medical condition since taking out your original policy, replacing it or applying for additional cover could result in different terms.
Don’t cancel an existing policy until any replacement cover has been accepted and you know exactly what terms you’re getting.
For more information on adding to your cover, read our guide to increasing executive income protection.
Can you have personal and executive income protection together?
Yes. A limited company director can potentially have both.
A personal policy belongs to you and you pay the premiums yourself. If you make a successful claim, the benefit is normally paid directly to you.
With executive income protection, the company owns the policy and pays the premiums. Claim payments are made to the company, which can then use the money to continue paying you.
If you already have personal cover when you set up a company, you don’t necessarily have to cancel it before looking at executive income protection.
For more information on the differences between the two, read our comparison of executive vs personal income protection.
What if you already have income protection through work?
Some employers provide group income protection as part of their employee benefits.
If you already have this cover, find out exactly what it provides before buying another policy. Check the percentage of your income covered, how long you have to be off work before payments start and how long a claim can be paid.
Also check what happens when you leave the employer. Cover provided through work will not normally follow you indefinitely after you’ve left the job.
Should you replace an older policy?
Don’t assume a newer policy will automatically be better.
If you’ve had income protection for several years, compare the old and new policies carefully before cancelling anything. Look at:
- the monthly benefit;
- the deferred period;
- how long a claim can be paid;
- whether the premiums are guaranteed or reviewable;
- the definition of incapacity;
- any exclusions; and
- the premium.
Your health may also have changed since you took out the original policy. A medical condition that wasn’t an issue when you first applied could affect the terms of a new policy.
What should company directors consider?
Directors often receive income from more than one source, particularly where they take a small salary alongside dividends.
If you already have income protection and want more cover, check how much of that income the insurer will recognise and how the existing policy affects the amount of additional benefit available.
You should also consider whether the extra cover is better arranged personally or through your limited company.
For more information on deciding how much to insure, read our guide to how much executive income protection you need.
Before taking out another policy
Start with the cover you already have. Check how much it would pay, when payments would start and how long they could continue.
Then you can see whether another policy would actually give you useful additional protection or simply overlap with what you’ve already got.
If you already have income protection and are considering additional cover, a specialist IFA can review your existing policy and compare the options available from other insurers.