For couples in the UK, securing life insurance is a fundamental step in comprehensive financial planning. It provides peace of mind, knowing that your loved ones will be financially supported should the unthinkable happen. However, a common dilemma arises when choosing cover: should you opt for a single policy each, or a joint policy? This decision impacts not only the cost but also the flexibility and the eventual payout. This guide aims to clarify the distinctions between joint and single life insurance, helping UK couples make an informed choice that best suits their circumstances and shared future.
Understanding Joint Life Insurance
Joint life insurance policies are designed to cover two people, typically a couple. The key characteristic of a joint policy is that it pays out once – either on the first death or on the second death, depending on the policy structure.
- First Death Payout: Most commonly, joint policies are “first death” policies. This means the agreed lump sum is paid out upon the death of the first person covered by the policy. Once the payout is made, the policy then ends, and no further cover remains for the surviving partner. This structure is often chosen when the primary goal is to clear a joint mortgage or provide a lump sum for the surviving partner to manage immediate financial needs.
- Second Death Payout: Less common for general protection but sometimes used for inheritance tax planning, a “second death” policy only pays out upon the death of the second person covered. This type of policy ensures funds are available after both partners have passed away, usually for beneficiaries.
The simplicity of managing one policy and the perception of lower premiums often make joint policies appealing to couples, particularly those with shared financial commitments like a mortgage.
Understanding Single Life Insurance
Single life insurance, conversely, involves each individual taking out their own, separate policy. As a couple, you would each have your own policy, meaning there would be two distinct contracts.
- Individual Cover: Each policy operates independently. If one partner passes away, their individual policy pays out a lump sum to their beneficiaries. The other partner’s policy remains active, continuing to provide cover for them.
- Two Potential Payouts: A significant advantage is the potential for two separate payouts. Should both partners pass away (at different times), a payout would be made from each policy. This offers greater financial flexibility and can provide a more substantial overall safety net for dependents.
Single policies can be tailored to individual needs, allowing for different levels of cover, different policy terms, and different beneficiaries for each person, offering a high degree of customisation.
Key Differences: Payout, Cost & Flexibility
When comparing joint and single policies, several crucial differences emerge:
Number of Payouts:
- Joint (First Death): One payout, then the policy ends.
- Single: Two potential payouts (one per policy), if both partners pass away at different times.
Cost:
- Joint: Often appears cheaper initially as you’re covering two lives under one contract, effectively paying for the first risk to materialise.
- Single: Taking out two separate policies is typically more expensive overall than a single joint policy, as you are paying for two distinct potential payouts. However, the cost difference might be less significant than often assumed, and the benefits can outweigh this.
Flexibility and Future Needs:
- Joint: Less flexible. If the relationship changes (e.g., separation, divorce), the policy can be difficult to split or may need to be cancelled and new ones taken out. If one partner dies and the policy pays out, the surviving partner is left without cover and may find it harder or more expensive to obtain a new policy later in life.
- Single: Highly flexible. Each policy can be adjusted or cancelled independently. In the event of a separation, each partner can simply retain their own policy. If one partner dies, the other’s cover remains in place. This flexibility can be invaluable as life circumstances evolve.
When is Joint Cover Most Suitable?
Joint life insurance, particularly “first death” policies, can be a suitable choice for couples primarily looking to:
- Cover a Joint Mortgage: If the main objective is to ensure that the mortgage is paid off upon the death of the first partner, a joint policy is a straightforward and often cost-effective solution. The lump sum clears the shared debt, alleviating a major financial burden for the survivor.
- Budget Considerations: For couples working with a tighter budget, a joint policy might offer the perceived initial affordability to get some essential cover in place.
- Simplicity: Managing a single policy can be simpler than overseeing two separate ones, appealing to those who prefer less administrative hassle.
When are Single Policies More Beneficial?
Separate single life insurance policies often prove more advantageous for couples who:
- Have Dependent Children: With two potential payouts, single policies offer greater financial security for children, ensuring funds are available regardless of when each parent passes away.
- Desire Greater Flexibility: For couples who anticipate potential changes in their relationship status or who value the ability to modify policies independently, single cover is superior.
- Have Unequal Health Profiles: If one partner has significant health issues that would make their premiums very high on a single policy, a joint policy might be too expensive if based on the less healthy partner. However, two single policies allow the healthier partner to secure cheaper cover, while the less healthy partner might take a smaller, more expensive policy, or explore guaranteed acceptance options.
- Wish to Leave Separate Inheritances: If each partner wants to ensure a specific amount is left to their own beneficiaries, regardless of the other’s policy.
- Are Unmarried/Unrelated but Have Shared Debts: While often for couples, single policies offer more distinct protection if the financial relationship is less intertwined.
The choice between joint and single life insurance for couples in the UK is not one-size-fits-all. While joint policies offer simplicity and often a lower initial cost for shared debts like mortgages, single policies provide unparalleled flexibility, the potential for two payouts, and adaptability to evolving life circumstances. Your decision should ultimately align with your shared financial goals, your individual health situations, the presence of dependents, and your long-term plans.
Speak to an Expert at Argyll Drummond
Choosing the right life insurance for you and your partner is a significant financial decision. To ensure you make the best choice for your unique situation, tailored to your budget and future aspirations, contact Argyll Drummond. Our expert advisors can help you compare joint and single policy options, providing clear, impartial guidance. Get in touch today for a no-obligation consultation and secure your family’s financial future.