This is a guest post from life insurance broker Reassured:
Taking out a joint life insurance policy may seem like a great idea if you are in a steady relationship.
It seems especially logical if you already have a joint mortgage, bank account or are married.
After all, all other aspects of your lives are joint, so why not your life insurance?
Taking out a joint life insurance policy as opposed to two singles policies, not only means paying one monthly premium instead of two, but it can also save you up to 30%.
The application process is also easier as it only requires one application rather than two.
Unfortunately, there are several characteristics of joint life insurance which actually mean it may not be the best option for you.
Let’s look at the detail…
Only pays out once
This is a big one!
Whilst a joint life insurance policy covers two people simultaneously, it will only ever offer one payout, (usually on the first death).
Whilst this will help alleviate the financial strain for the surviving partner, it does then leave them unprotected.
Once a pay out has been issued the policy expires.
This results in the surviving partner having to secure a new policy when older, which will mean higher premiums.
Equally, if the purpose of having life insurance cover is to offer protection for your children, it poses the questions – what would happen if both parents were to die together?
Remember, with a joint life insurance policy only one payout is made.
This may not provide sufficient protection to cover the financial loss of both parents, therefore putting your children’s financial future at risk.
You could end up paying over the odds
The cost of your life insurance monthly premiums are calculated by the likelihood of you making a claim.
Therefore, those of a younger age, in good health and non-smokers will pay much lower premiums.
Due to a joint life insurance policy taking into account these factors for both partners, health issues, older age or smoking status could increase the premium.
This could result in one member of the partnership paying over the odds for their half of the policy.
For example, if a 30-year-old non-smoker and a 40-year-old smoker were to take out a joint policy, the older age and smoking status of the second partner would inflate the overall cost.
Whereas, if partner one were to take out a single policy they would benefit from lower monthly premiums.
Difficult to split
Unfortunately, 42% of UK marriages end in divorce. But what would this mean if you shared a joint life insurance policy?
In the instance of a breakup, it is likely a joint life insurance policy would need to be cancelled.
Joint policies can rarely be split, and allowing the policy term to run its course can result in issues such as:
- Who pays the monthly premiums
- Who receives the pay out (usually this would go to the surviving partner which may not be ideal, especially if one or both of you remarries)
- What if one or both parties has subsequent children in a new relationship?
As a result, it is highly likely that the joint policy will need to be cancelled and replaced with individual cover.
This is likely to result in higher premiums now that you are older and have potentially suffered medical ailments.
Joint life insurance or 2 single policies?
While there are many compelling arguments why a joint policy may not be the best option, it is always best to have some form of life cover rather than nothing.
Therefore, if your monthly budget simply will not stretch far enough to take out two single policies, it is likely to be in your best interest to take out a joint policy.
The cost of all life insurance can vary significantly between insurers, therefore, when taking out a policy it is important to compare multiple quotes.
Using an FCA registered life insurance broker can save you time and money by carrying out this comparison on your behalf and some of them even offer their services for free.
Alternatively, use a comparison website or research yourself online.
Joint life insurance in summary
- Approximately -25% cheaper compared with two single policies
- Only pays out once, (usually on the first death)
- The application process is faster
- Two single policies provide two separate payouts
- If the relationship breakup the policy cannot be split
- If one party has personal/family medical problems this affects the overall premium
- After a pay out is made the policy expires. (Leaving the remaining partner uninsured or paying higher premiums)