A Guide to Joint Life Insurance

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What is a joint life insurance policy?

Rather than taking out two individual life insurance policies, it is possible to have a combined joint life insurance policy that covers both you and your partner in the case of death.

Of course, there are advantages and disadvantages to both.

Premium costs: single policy vs. joint life cover

The main advantage to getting joint life insurance is that typically, it is somewhat cheaper than two single policies.

Obviously, the usual factors play a part here – age, health, smoker or non-smoker, etc. but when comparing like-for-like policies for couples, it is generally true that a joint life insurance policy comes in a little cheaper.

It might only be 10% or 20%, but that can have a significant impact over a number of years!

Is it better to get joint life insurance for our children?

When looking at the differences between single and joint life policies, one thing that is easy to spot is the optional ways of paying out a joint life policy. These can be dealt with on ‘first death’ or ‘second death’ terms.

First death

The policy pays out in full as soon as one of the policyholders dies. Typically, the beneficiary is the second policyholder.

In this way, first death is a lot like a single life insurance policy where the payout is released if any of the two people pass away, rather than just the one. It’s an interesting take on life insurance that can work very well for some families.

In the scenario where life insurance is in place to cover the mortgage, as soon as one person of the couple dies, the mortgage is paid for and the living partner owns the house outright. This leaves them (and any children) secure with their home and makes life financially easier going forward.

The problem with a first death policy is that it leaves the surviving partner completely uninsured – they would now have to take on a brand-new policy of their own, which might be more expensive than because now they are older (and thus premiums are more expensive).

Second death

A second death policy only pays out if both parties are deceased. Typically, this is a way to pass a larger estate onto the children should both parents die. It is a fine way to cover expenses such as inheritance tax and to make sure that with both parents gone, the children are financially secure.

A second death policy does nothing to help the surviving partner on the death of the other party.

Second death policies are often Whole of Life policies, rather than level term or decreasing term insurance – this can mean that the premiums are higher and can make the insurance seem a lot more expensive in comparison. However, to truly understand the cost implications, it should be measured against two whole-of-life policies where it shows itself to be very favourable.

So, what is best? Should we have single or joint cover?

Too many people try to find one life insurance policy to work for all situations, but this isn’t really the case. Life insurance policies are designed for different needs and there are some situations where a given policy is exactly the right choice.

The following example shows how joint life insurance policies work in conjunction with other life insurance cover to provide a comprehensive solution:

Example - a married couple both working, two children, large family home of high value currently with a mortgage

In this scenario, both parents are paying towards the substantial mortgage, there are children to consider and a definite need to cover inheritance tax. The following levels of cover would make sense:

• A joint first death decreasing term cover set to clear the mortgage if one of the parents dies.
• A joint second death whole-of-life cover placed in a trust designed to pay for funeral costs and inheritance tax.
• A single level term life insurance policy with critical illness cover in place for the father to provide an inheritance to the children on his passing, placed in trust for the children’s 18^th birthdays, valued against his salary and set to end when he retires.
• A single level term life insurance policy with critical illness cover in place for the mother to provide an inheritance to the children on her passing. Again, placed in trust for their 18^th birthdays, valued against her salary and set to end upon her retirement.

With these four life insurance policies, the family is set to receive substantial payouts in any eventuality that will make sure they keep their home and have an inheritance to help the children get a start in their adult life.

For more information regarding having more than one life insurance policy, please read our article Can I Have More Than One Life Insurance Policy?

For a greater understanding of both level term and decreasing term policies, please read these articles:

• Level Term Life Insurance (LTA) Explained
• Decreasing Term Insurance: What Is It?

The failings of joint life insurance

Even the best joint life insurance cover can’t deal with everything life has to throw at you. Here are some disadvantages to joint life insurance:

Divorce

It is unfortunate, but many marriages don’t survive a long length of time. Joint life insurance policies after divorce can become a mess, where they are either discarded (meaning all the money paid into them is simply lost), remain in place despite animosity on both sides, or become part of a complicated fight to unravel joint finances. What seemed to be easy joint coverage at the beginning of the family becomes another area of disagreement.

Difficulty in understanding

Single life insurance policies are simple to understand and when looking at a complicated joint life policy for £20 per month against two simple single policies at £12 each, many couples would happily pay the extra £4 per month to do away with the complexities.

Single instances of critical illness cover

If you wish to add critical illness cover to your life insurance policy, you can do this, however it can only be claimed for once. This means that should the second partner become ill following a previous claim, they will not be covered under the CIC policy.

Two single policies with CIC would, of course, enable both parties to have their own independent CIC cover.

For more information regarding critical illness cover, please read our Guide to Critical Illness Cover.

How Quick Quote Protect can help when you need joint cover

At Quick Quote Protect, we are here to help you build a life insurance profile that perfectly suits your family and your personal needs.

We’re here with the experience to answer all your questions on joint life insurance, from the reasons to get joint life insurance even when you are not married, to advice on separating joint cover into two independent policies should there ever be a need.

Give us a call today to see how we can help or fill in our contact form to have someone call you back at a time convenient to you.