Getting married or starting living together will mean some major changes to your financial arrangements. Sharing the bills and looking at how two incomes can mean a nicer home are the obvious first steps.
But you also need to think about financial protection. Life insurance may (hopefully) be something you will only call on in the distant future. But the fact is that one day it could provide vital support for you or your dependants, and you need the security and peace of mind it provides right away.
You and your partner or spouse both need life cover, and the sooner you arrange it, the less it can cost. You probably have a joint bank account and a joint mortgage. But should you each have a single policy or should you buy a joint life insurance policy together?
How much life cover do you need?
Arranging life insurance is simply part of providing for your dependants, by providing a cash lump sum if you or your partner were to die during the cover period. The size of this sum is up to you. It could be enough to pay off the mortgage, or to replace the income you provide for your loved ones if you were no longer there to provide it yourself.
The amount of cover you need will depend on several factors. How big an income do you need to replace? How large is your mortgage, how many dependents do you have, and will there be any benefits from elsewhere, such as a ‘death in service’ benefit, from your employer. The level of cover you need will change over the years, and may reduce as you pay off your mortgage. It should be reviewed regularly.
Single or joint life cover?
A joint life insurance policy covers you both under the same policy, and tends to be cheaper and simpler than arranging two single policies for the same level of protection.
However, there is an important difference. Single policies are independent, and provide a payment on the death of the person insured. With a joint policy, there would only be one payout after the first death, leaving the remaining partner without insurance.
This might not seem to be a problem, especially if the insurance was designed to cover a mortgage. If one of couple passes away, the policy would pay off the home and hopefully provide some cash left over.
But the survivor would have no cover in place. They could simply take out cover for themselves, but they might struggle to find it on competitive terms, as they would be older – and especially if they had developed any serious medical conditions.
This may be a major issue for you if you had dependants. With single policies, if one parent dies first, the survivor would still have cover, which would continue to offer protection for their children.
For this reason, although two individual term insurance policies may be more expensive than joint cover, the added protection for your children may well be worth the extra costs.
Single cover can be tailored for your needs
All insurers need to know about your health when arranging a policy. A joint policy may be cheaper than two policies if both the insured are in good health. If one has a medical condition, the cost of cover overall may be increased, removing any savings over joint cover.
If one of the couple is the major breadwinner, they might require a higher level of cover to replace their income. Again, costs might be reduced by providing single policies with appropriate levels of cover.
Single cover is simpler with separation and divorce
It’s not something most couples consider when they start out together, but divorce and separation always have to be considered as part of planning for the future. Some joint policies may be able to adapt to a change of circumstances, or may set certain requirements to allow cover to be continued.
Again, individual cover may provide a simpler answer.
But joint cover can keep the taxman at bay
Single policies may be the first choice for many people, but there is still an important use for joint cover. Despite the awkward name, Joint Life Second Death Whole of Life cover can be a simple answer to Inheritance tax issues. This cover is set up to pay out on the second death of a couple, rather than the first. By putting this in trust, so it does not form part of your estate, it can be paid out without incurring Inheritance Tax. This makes it ideal for paying off Inheritance Tax liabilities, and ensuring that your estate can go to your loved ones intact.
What cover do you need?
Life insurance, whether individual or joint, needs to be carefully tailored to your needs, and planned to minimise any tax burden on those who survive you. To discuss getting the protection you, your partner and your dependants deserve, please call us at Continuum. Our protection specialists will be happy to help.