What is joint life insurance?


Financial Guidance

From moving in together to deciding to start a family, there are a lot of milestones in a relationship. As exciting as these can be, it's often taking on these responsibilities that can make you think about what will happen when you're no longer here.

Something that can help you protect your loved ones after you're gone is life insurance. But should you take out a single policy or is it best to consider taking out life insurance as a couple? We explore the options.

Joint life insurance

A joint life policy is one that insures two people instead of one. When one person dies, the money is paid out and the policy term finishes. You can choose whether you want the joint policy to pay out on the first or second death.

On this type of policy, you're both equally covered but the policy will only pay out once. So if you were to both pass away at the same time, only one lump sum would be released. This type of cover can make sense if you share financial responsibilities – such as a mortgage or credit agreement – as you'll only need to make certain payments once.

First-death vs second-death policies

With a first-death policy, the insurance will only pay out a lump sum after the first person in the couple dies. One downside of this type of cover is that the surviving partner will be left without insurance after their partner dies.

So if this person were to die without taking out any further life cover, there would be no further pay-out. This could be problematic if they still have children that depend on them, or an outstanding debt.

The surviving partner could arrange their own life insurance but at this stage in their life they might be older and of poorer heath – meaning that they face higher premiums than if they had taken out their own policy from the start.  

On the other hand, you might be able to take out joint life insurance that pays out on the second death – although these policies are rarer. In this case, the family of the couple would only be able to claim on the death of the second partner, not the first.

Second-death policies can be cheaper than those for first-death, as the risk is smaller but remember there's still only one pay-out. And it also means the surviving partner won't be able to access any funds once their partner dies.

What if we split up?

This is a good question, and one that not many people think about. You won't be able to simply split a policy so unless a couple is prepared to continue with the same financial arrangements, the policy will most likely need to be terminated.

At this point, each partner may want to consider taking out their own life insurance. But again, at their age and state of health, this might be more expensive than if done so earlier.

A single policy or separate plans?

Your personal circumstances will determine whether a joint life insurance policy or individual plans make more sense for you. While it can be more convenient to take out a joint life policy and it can work out marginally cheaper than two single policies, you will only receive one pay-out.

So in this case, if a married couple had a joint policy and both died at the same time, their dependents would only receive one lump sum from the policy. If they had taken out two individual policies, their children would receive two pay-outs. 

The best thing to do if you're considering taking out life insurance is get separate quotes for single and joint cover.

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