Life insurance is a cornerstone of financial planning as it can provide for your family after your death. So it’s important to choose the right policy and arrange an appropriate level of cover.
Couples also have to decide whether to take out two single life policies or opt instead for joint life insurance.
Many couples buy one joint life policy because it is usually cheaper than two separate plans. It is also often easier to deal with just one set of paperwork. But it’s important to bear in mind that many joint life plans pay out only on the first death.
Let’s say a husband and wife take out joint life insurance of £500,000 over 20 years. The husband dies after 15 years and the policy pays out £500,000. The policy then expires, leaving the wife without insurance. So, if she dies two years later, there will be no further pay-out.
separate policies can be the better option if you and your partner are different ages and in different states of health
It is easy to see why this might be a problem if there are still dependent children or an outstanding debt.
The wife could arrange her own life insurance after the husband’s death, but she would by then be older and possibly in a poorer state of health. The premiums would therefore be higher than if she had arranged her own policy at the outset.
An alternative is joint life insurance that pays out on the second death. If we use the same example, the family could not claim on the death of the husband but would be able to claim on the death of the wife two years later.
Premiums for second death joint life insurance are typically cheaper than for first death because the risk of a claim is smaller. But again, there is only one pay-out.
There are other potential pitfalls with joint life insurance. For example, if the couple splits up, the insurer cannot usually divide the cover. The policy would also lapse if one of the couple could not or would not pay their share of the premiums.
You don’t have to be married to take out joint life insurance, but a joint policy tends to work best in more traditional households where there is one main breadwinner. Of course, many families these days rely on two incomes, so it’s often worth considering two separate life policies. It might be more expensive, but you get the potential to double the pay-out.
Also, if both individuals were killed simultaneously, perhaps in a road traffic accident, a joint policy will still only pay out one sum insured.
For example, a husband and wife each take out life insurance of £500,000 over 20 years. The husband dies after 15 years and the family receives £500,000. If the wife dies two years later, her own policy will also pay out £500,000.
You can also tailor single life cover to meet your needs. For example, the husband might take out £500,000 of cover, but the wife might only buy cover of £300,000.
They might even opt for different terms, perhaps 20 years for the man but 25 for the woman. In addition, separate policies can be the better option if you and your partner are different ages and in different states of health.
There’s a lot to think about, but whatever you decide you should always compare premiums to make sure you get the best deal – and it couldn’t be easier with MoneysuperMarket’s free online service.
So whether you decide on joint or single life insurance, or even to compare the two, our site has all the details at the click of a mouse.