Joint or single life insurance cover – which is best?

When it comes to being financially smart, most of us realise that taking out life insurance is an excellent way to protect against the potential impact of unexpected events. It’s calculated that around 23 million people have life insurance cover: that’s the equivalent of nearly 50% of the adult population. However, knowing which type of insurance to opt for can be less clear cut. And, when it comes to choosing the right life insurance policy, deciding between joint or single cover can be tricky.

Understanding The Different Types of Life Insurance

Before you make your decision, it’s important to be clear on the different kinds of cover available. In the first instance, you will need to understand that when it comes to insurance, life doesn’t have to mean lifelong. Instead, the majority of people will be signing up for what is known as “term” life insurance, which simply means that your arrangement for cover will last for a set duration. This period may be until your mortgage is paid off in full, or the date at which you plan to retire. With this kind of life insurance, you also get options when it comes to any potential payout. There is “level term” life insurance, in which any pay out will be for the same amount, regardless as to when a claim is made, and there is “decreasing term” life insurance, which will reduce the size of any payment as time goes on. This reflects the likelihood that, for example, amounts left to pay on a mortgage will be smaller, the longer you live.

The other kind of life insurance is known as “whole of life” insurance, and, as the name suggests, this kind of cover will give a payment regardless as to when you pass away. As a result, this kind of policy typically comes with higher premiums, which you will need to keep up for the duration of the policy period in order to guarantee a payout.

It’s also worth investigating whether your employer provides “Death in Service” insurance, which can pay out a sum of around 3-4 times your annual salary, should you die whilst employed by the policy holder.

The Advantages of Joint Life Insurance

If you have a partner, then taking out a joint life insurance policy may appear to be an obvious decision. Opting for such a policy can certainly offer a range of compelling benefits. If you decide to take out joint cover, you will typically find that the cost is less than the price of taking out individual policies and the process is often simpler, too. Having just one life insurance payment going out of your account can also help to streamline your monthly household expenses.

You can also specify different pay out sums for each partner, which can be useful where one partner makes a greater financial contribution than the other. Doing this can make premiums more affordable, too.

Furthermore, today’s joint life insurance policies are not reserved for married couples. Those who live with a partner, or those who have a non-romantic business partnership, can also opt for joint life insurance cover. The only prerequisite is that the two persons involved have a financial relationship, such as a shared mortgage or ownership of a business.

Points Against Joint Life Insurance

However, there are a few reasons why joint life cover may not be the preferred option. For example, there is usually only one payout per policy, even if both parties die during the specified period. And the amount paid will be a set sum, and make no allowances for discrepancies in benefits that either one of the policy holders may have received upon death (such as work-related benefits, or additional life insurance policies).

The length of cover will be the same, even if one of the pair is significantly older than the other, and, should one of the policy holders die, this kind of cover will leave the other uninsured. If this should happen towards the end of the cover period, the surviving partner could find that their increased age by this point (as well as any likely associated health issues) will make taking out a new life insurance policy a lot more expensive.

And, whilst of course, nobody wants to think that their relationship may fail, should this happen it can be extremely difficult (and in some cases impossible) to separate life insurance policies unless a specific clause is built into the agreement from the start.

Why Joint Life Insurance Is Cheaper

One key draw of a joint life insurance policy is undoubtedly the cost. Thanks to the fact that only a single payout will be made for a joint policy, it’s considered lower risk than single life cover, and premiums are typically lower as a result. Furthermore, statistics indicate that people who are in married or long-term relationships tend to live longer than singles, with the British Medical Journal citing that married couples are between 10 and 15% less likely to die prematurely [1]. This expectation again reduces the risk level for insurance companies, and subsequently the cost for policy holders.

First And Second Death Policies

As we mentioned above, the typical joint life insurance policy will pay out only once, and this will be upon the first death to take place. This can, however, sometimes be amended to specify whether the pay out is awarded on either the first or the second death to affect the two policy holders. If this is available, there should be a section of the policy’s application form that allows this option. With this clause, a surviving partner can opt not to take the pay out on the death of their partner, and instead leave the policy in place for the remainder of its term, with any payout made to beneficiaries upon their later death.

Choosing this option can allow the surviving partner to avoid the challenge or added expense of taking out a single life insurance policy in later life. It is important to note that by choosing the second death option, there will still be just the one payment made. Its suitability will depend on the financial situation of the surviving partner, for example, whether they are able to keep up mortgage payments and family expenses without their deceased partner’s income. A second death option can work out cheaper, as insurers calculate that there will be a lower chance of both partners passing away during the cover period and so less likelihood of a claim being made.

What About Single Life Insurance?

Given the drawbacks of joint life insurance, many people in relationships still opt for single life cover. Whilst this kind of life insurance comes with premiums which are undoubtedly more expensive, it also offers some compelling advantages.

The main reason to opt for single life cover is the flexibility that it offers. By taking out separate life insurance policies, each partner can tailor their cover to take into account the differences between them, such as age, earning power, pre-existing health conditions, and any assets. The duration of the cover can be chosen for each party, and, as each person will have their own policy, there will be two payouts made should both die. This in turn removes the potential challenges in acquiring affordable life insurance faced by a surviving partner in later years. It also takes away any complications in dealing with a joint life insurance policy following a relationship breakdown.

The downside of choosing single life insurance is the likelihood of higher premiums, which will add up to a considerably larger total sum spent on this insurance. Furthermore, with two sets of applications to complete, the overall process can be a little more time-consuming.

Choosing Your Policy

The good news is that the UK is the leading nation in Europe when it comes to life insurance provision [2], with life products having a market share exceeding 70% of the total UK insurance market. Indeed, over £10 million is spent annually on life insurance policies in this country. This all means that there is an unrivalled choice for customers looking to take out a policy themselves. By shopping around, and comparing quotes, British couples can be sure to find the right cover for their needs, whether that be a joint policy or two single policies. With 98.3% of claims paid out by British life insurers [3], getting it right can make this cover a very sound investment with the precious peace of mind that loved ones will be taken care of, should the worst happen.

As a general rule, there are some factors that can be taken into consideration when choosing your life insurance policy. Your household budget will likely be important: bear in mind that the younger you are when taking out a life insurance policy, the cheaper it is likely to be, due to the expectation of insurers that you will be less likely to pass away and will make more payments over the long term. In the case of a joint life cover policy, the price quoted will typically be calculated based on the age of the elder of the two policy holders, meaning that this can potentially be less cost-efficient for the younger party.

Think too about the level of cover that you will need. Financial commitments such as the amount left to pay on a mortgage, or the expected cost of raising any children should be factored into the policy pay out you choose. As with any other kind of insurance, it’s vital that it is set up with absolute accuracy in terms of the information provided: failure to provide accurate details can lead to the policy being invalidated and claims denied, regardless of any premiums which have already paid. For couples who opt for a joint insurance policy, both parties will be excluded from claims even if just one of the policy holders has given false information.

Joint Or Single Cover – Which Is Best?

As we have seen, there’s no straightforward answer as to which kind of life insurance will make the best option: it will depend on the circumstances of each couple involved. A couple with a significant age difference, or greatly varying financial assets, may consider that taking out two single life insurance policies will be the best option, whilst a pair who are of a similar age but within different earning brackets without any notable health issues may decide that a cheaper joint policy will be right for them. Factors affecting the individuals involved (such as age, smoking status, medical history and so forth), will also have an impact on the premiums quoted, whichever type of life insurance is chosen.

For you and your partner, taking the time to think about what is best for your situation will be the most effective guide to choosing the ideal life insurance cover for you both. Why not explore the policies available using our comparison tools here at Free Price Compare.

References

• [1] bmj.com
• [2] statista.com
• [3]dontdisappoint.me.uk