Single or joint life insurance for couples?

What is a single life insurance policy?

A single life insurance policy covers one person. When that person dies the policy will pay out a lump sum to their estate with the proceeds, in turn, passed to their beneficiaries.

If a couple buys two single life policies, the policies will be completely independent of each other. The two policies can be with different life insurance companies, for different terms, and be for different amounts. Each policy will pay out when the policyholder dies.

What is a joint life insurance policy?

A joint life insurance policy covers both partners, but only pays out once.

This is normally after the first death. The idea is that the money will help the surviving partner pay the mortgage or bills – otherwise they might struggle on a single salary.

Once the policy has paid out on the first death, the policy ends. This means the surviving partner would no longer have any life insurance cover under the policy. If both partners die at the same time, only one payout would be made.

With a joint life insurance policy, both partners must be insured for the same amount, so the payout is the same whoever dies.

A small number of joint life insurance policies operate on a ‘second death’ basis. This pays out to the beneficiaries only after the last surviving person on the policy dies. Second death policies are mainly used by high net worth individuals for inheritance tax planning purposes.

Which is the cheapest option?

In most cases, a joint life insurance policy will be cheaper than the combined cost of two single policies. A joint policy can also be easier and quicker to set up as it will involve one application and one regular payment per couple.

But it’s important to remember that a joint policy will normally end on the first death. If the surviving partner sets up a new policy, he or she may find premiums are more expensive due to their age or health. So opting for a joint policy at the outset may turn out to be false economy later on.

Also, it’s not always the case that a joint policy will be cheaper. Shopping around for two single policies could result in spending roughly the same money each month.

If both partners die at the same time, two single life insurance policies will result in two payouts to the respective beneficiaries. In short, they offer double the protection. 

What happens if you split up?

If you hold a joint policy and split up, things will be more complicated than if you held two single policies. In general, insurers cannot split a joint policy so it will need to be cancelled and new individual policies taken out.

A handful of life insurance policies offer a ”separation option”, meaning the policy can be split and continue without either policyholder having to go through the underwriting procedure again.

If a couple holding two single life insurance policies separate, things are much simpler: both policies continue as normal.

Writing a life insurance policy in trust

Whether you have two single policies or a joint life insurance policy, it can be beneficial to write the policy in trust. Doing so means the payout from the policy won’t be included in your estate for inheritance tax purposes.

A joint life policy can be written in trust so the payout goes to the surviving spouse or to any children in the event of both parents’ deaths.

Writing a policy in trust also means payment to your beneficiaries will probably be quicker, as the money will not go through the probate process. Instead, the insurer can arrange the payout after receiving the death certificate.