The Complete Guide to Joint Life Insurance

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By Crispin O'Toole-Bateman

on Monday 16 September 2019

Couple sat on the sofa watching tv

What is a joint life insurance policy?

Life insurance often becomes a consideration once you start a family. When you are looking to cover both yourself and your partner should either one of you have a tragic accident, surely it would save money and make more sense to have some sort of joint cover rather than two individual policies?

Well, yes, that might definitely be the case!

A joint life insurance policy is one of many types of life insurance that exists to provide the perfect cover for you and your family.

The many different faces of life insurance

No two life insurance policies are ever identical. A good life insurance package to protect your family is tailored around your personal circumstances and what works for you might not work for someone else, and vice versa.

It’s worth saying it now – joint life insurance has a poor reputation. Many advisors strongly believe that the advantages of two independent policies are more beneficial than a single joint insurance, and in many situations they are right, but not all situations.

Like many niche products, joint life insurance is not for everyone, but when it’s right, it’s very right!

How is joint life insurance different to single insurance cover?

Joint life insurance for couples pays a lump sum (called the ‘sum insured’ or ‘sum assured’) on the event of a death. Unlike individual cover, a joint policy provides security for two people and comes into force whenever either of them dies.

However, unlike two single policies, the joint policy will only pay out once upon the first death, leaving the second person uninsured. The following chart details how the different types of policy will pay out.

 

Individual policy on person ONE

Individual policy on person TWO

Two individual insurance policies

Joint policy

Pays if person ONE dies first

YES

NO

YES

YES

Pays if person TWO dies first

NO

YES

YES

YES

Pays if person ONE dies second

YES

NO

YES

NO

Pays if person TWO dies second

NO

YES

YES

NO

Total possible payouts

1

1

2

1

 

It is the more comprehensive cover offered by two single policies that cause so many advisors to opt for this plan. There are circumstances though, where it doesn’t make sense.

Paying the mortgage – joint life insurance at its best

The mortgage only needs to be paid off once.

It sounds like an obvious statement, but it is easily overlooked. A decreasing term life insurance policy is designed to cover a repayment mortgage – as time goes on, the sum insured on the policy drops in line with the remaining balance on your mortgage and should you die, the insurance company pays out, the mortgage is cleared and the house is safe for your surviving family.

It’s a very good product and the decreasing nature of it allows insurance companies to offer very competitive rates as the longer into the term you go, the lower their risk.

Many people opt for an individual decreasing term life insurance policy to cover their mortgage should they die – typically, the person earning the most money takes out the policy. If they die, the other person doesn’t have to find the money to pay the monthly mortgage.

But what if it isn’t them that dies? What if it is the other partner, the one who earns less? Well then the surviving partner still has a mortgage to pay for. Of course, it’s totally reasonable to get a life insurance policy on the other partner too – decreasing term life insurance is affordable, and that way the mortgage gets paid off no matter who dies… twice.

It’s easy to see how this is the wrong way to do things. The mortgage only needs to be paid off once. A joint decreasing term life insurance policy is the perfect way to cover your mortgage, and will mean the balance is cleared if one of you passes away, leaving the other person able to remain in the home without worrying about a monthly repayment.

As many couples also have a mortgage, surely it stands to reason that all of them would benefit from a joint life insurance policy? It’s too easy for advisors to miss this perfect interaction between real-life finances and the specific nature of a joint policy, opting for comprehensive cover rather than the right cover.

The modern couple – joint life insurance when not married

While marriage is on the decline (statistics show a drop of 3.4% in marriages between 2014 and 2015 when the last data was available), it still forms a substantial part of expectations for many couples. The contract of marriage and that of civil partnership provides for shared finances and makes the beneficiaries of life insurance simplified even in cases of intestacy (dying without a will in place), however, joint life insurance is not just for married couples.

Couples who would like a joint life insurance policy, whether it is for a mortgage or other need, are able to apply for one irrelevant of their marital status although most insurance companies will only provide policies for people living in the same household.

With a joint life insurance policy, the other partner is considered a beneficiary by default, but it is also recommended that you write a comprehensive will detailing your wishes – it is certainly possible to name a third party (often a child) as beneficiary to the life insurance. In that case, then the child would inherit the sum insured on the policy if either parent died.

It should be noted that a listed beneficiary on a life insurance policy typically trumps any countermanding desire written later into a will.

Dealing with a joint life insurance policy after divorce

A joint life insurance policy can get become a little problematic after a divorce, especially if the divorce is acrimonious.

Some policies are locked and divorce cannot change them, in which case often the best option is to cancel the policy and start again.

As more insurers look at providing better options, the flexibility with joint life insurance policies becomes improved. Many policies can be adapted into a single individual policy, requiring one of the partners to sign over the policy to the other. This can either be done easily in an amicable divorce or as part of the court proceedings.

Life insurance policies do not have a ‘cash-in’ option, and are not investments or savings accounts. If you choose to cancel it at any time, including divorce, you should not expect any sort of reimbursement of previously paid premiums.

Writing joint life insurance in trust

There are many benefits to writing your life insurance policy into trust. By doing so, your policy will go directly to your intended beneficiary without needing probate, and will also be outside of any inheritance tax.

Once your life insurance is written into trust, however, you should consider it locked and you will not be able to change beneficiaries at a later date.

Our advisors are experts on trusts and will be happy to discuss this with you at the time of application – plus, if you have a current policy and would like to move it into trust, we are here to help. Why not give us a call today?

What are the benefits of getting a joint life insurance policy

Joint life insurance quotes are always cheaper than two single policy quotes. With cost a major consideration for any type of financial security, the discount that is obtained by combined life cover ranks at the top of the list for anyone considering a joint life policy.

As discussed earlier, life insurance policies are at their best when tailored to your specific circumstances and knowing how joint life insurance works gives you an extra tool to use when considering your families security should you have an accident.

Joint life insurance is an affordable way to make sure your children are cared for in a situation where one or both of their parents pass away. If you have a sum in mind that the children will need for their lives, then a joint policy ensures that the right amount is available, irrespective of which parent dies.

Joint life insurance is also an excellent form of cover for couples without children. In these situations, the death of the second partner is largely irrelevant as they leave no dependents, where the first death in the couple could leave the survivor will heavy financial burdens.

The drawbacks of joint life cover

As the chart earlier in this article shows, joint life cover doesn’t present quite as comprehensive a level of financial security as two individual policies.

If there is a large time difference between the death of the first parent and the second, then it is often prudent to obtain additional cover once the joint cover has been paid out to provide security for a distant unknown future.

Joint life cover is another financial tie in a couple’s relationship. Should that relationship break down, it can cause additional issues.

How long does a joint policy last for? How much cover do we need? Questions on joint life insurance

Joint life insurance is not a separate type of life insurance itself, but an adaption on standard life insurance. You can get joint whole of life cover, joint decreasing term cover and more.

Joint versions of the standard policies will follow the same rules as individual cover. Thus a joint decreasing term insurance cover taken out to cover a mortgage will last until your mortgage is paid off, and joint whole of life cover will remain in place until the first party dies, irrespective of when that is.

You can learn more about the different types of life insurance in our library of articles here at Unite Life.

Where can I get a quote for joint life insurance? Life insurance quotes with Unite Life

As expert life insurance advisors, at Unite Life we can find joint coverage to suit your family. Our advisors are able to answer your questions and will help you plan for your family’s financial security without any obligation.

Why not fill in our contact form or simply pick up the phone and call today?

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08000 106 194
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