What is joint life insurance?

A joint life insurance policy could be a more affordable option for a couple to buy yet it only pays out once, on the death of the first policyholder. 

We’re not good at talking or thinking about death in the UK but if one person in a relationship were to die suddenly, what would happen to their family? Would they still have enough money to cover the household bills without their income or would this be a struggle? Let’s take a look at the pros and cons of a joint life insurance policy.

Most families today have two incomes and need this joint money to pay for costs including:

• Childcare
• Groceries
• Utility bills
• Mortgage costs

Therefore having a plan in place to cover the money lost if one income disappears could provide peace of mind.

What is a joint life insurance policy?

A joint life insurance policy does what it says on the tin - it covers two people on one policy. It could be cheaper than taking two single life insurance policies out although there’s only one payout, on the first policyholder’s death. At this point the policy ends and there’s no payout if the surviving partner were to die. 

When deciding whether to buy joint or single life insurance it’s important to look at all the options and weigh up the pros and cons of both.

What happens when both partners contribute equally to their income?

Historically, life insurance was sold with the idea of covering the breadwinner’s income, if they were to die. This would ensure that those left behind wouldn’t be left without an income and be faced not having enough money to pay for everyday necessities.

Times have changed and it’s much more likely now for families to have two breadwinners and for their salaries to be closer together. These two salaries are used to pay for housing costs and other bills and therefore are much more equal.

Even in families where one person earns more, it’s generally the case that the other, if there are children, might take on duties including housework or childcare. While these are unpaid, if the person were to die there might be a significant financial cost to pay someone to take on these roles.

Let’s say one partner carries out 30 hours of unpaid duties around the house and for the family. If they were to die unexpectedly how would these hours be covered? Could the remaining partner complete them on top of their job? Or would they need to find the money to employ someone to do them?

If it would be a struggle, or impossible, to cover the costs of either partner if they were to die, joint life insurance is an option to provide some protection. Life insurance for both partners, either through two single policies or a joint policy covering them both, could provide money if one were to die.

It’s worth having a think about the roles of both people in a relationship and factoring in any unpaid jobs either does when thinking about life insurance. 

For more guidance on deciding how much life insurance cover you need, we have a life insurance calculator to help.

What are my cover options with a joint life insurance policy?

If you want to cover two people, you can either buy a life insurance policy for each or you can buy a joint life policy to cover two people.

You then have to think about the kind of life insurance you want to take out. There are a few different options and here are the most popular:

• Level term life insurance: You set the amount of money you want to be paid out and the time frame. If you die within this period, say 25 years, the set amount of money is paid out.
• Decreasing life insurance, referred to as mortgage life insurance: This is a cheaper option as the sum of money paid out falls over time. It’s usually taken out to cover mortgage payments, which also reduce over time.
• Whole-of-life insurance: Your policy pays out when you die, whenever that is. There’s usually not a set time frame for this and these policies tend to be the most expensive. 

There are also a number of other life insurance policy types you might want to think about. Critical illness cover, for example, provides a lump sum of money or a regular income if someone is diagnosed with a specific condition. Income protection insurance could also provide a regular income if you’re not able to work because of illness or injury. 

What are the differences between a single life insurance and joint life insurance policy?

Although both single and joint life insurance work the same in principle, the policies are different. And it’s important you understand these differences when making a decision as to which is best for you. Here we take a look at some of the main differences between the two different policies.

How much cover you get

If you buy a single life insurance policy, it covers the policyholder and it pays out a sum of money if they die to their named beneficiaries. These are usually family members or financial dependents. A joint life insurance policy covers two people but it usually only pays out one sum of money, on the first policyholder’s death.

For example, if a family with two adults took a single life insurance policy out for each partner. This may have a payout of £200,000 on death. It would pay this out when the first partner dies and when the second partner dies, as long as the policy is still in place.

Now let’s say that the family had a joint life insurance policy covering both adults instead. It would only payout the £200,000 once, on the death of the first policyholder. After this point the policy would end. 

The type of policy you need depends on your circumstances including:

• Your budget
• Your current outgoing costs 
• The amount of money you want to leave behind.

If one payout would be enough to cover all major household costs then a joint policy could be your best bet. 

However, if just one payout would still leave a significant shortfall to cover a family’s finances, two single policies, and two payouts, could be better for you. 

The cost of a policy

When you compare life insurance quotes you’re given a range of quotes based on your circumstances including where you live, your profession, and your health and lifestyle. This price is unique to you as it’s based on the likelihood of a claim being made on the policy, and the insurer having to pay out. 

Generally a joint policy could be cheaper than two single policies. This is because with a joint life insurance policy an insurer only ever has to make one payment. However, it’s always worth checking the prices before you buy - with a range of different insurers. This is because if one person in a couple is at a higher risk of making a claim, they have pre-existing health conditions for example, this could push the price up for the other partner. 

Who can take out a joint life insurance policy?

Anyone can take out a life insurance policy, either a single or joint policy. While joint policies are typically designed for couples they can also apply to two people in a different kind of relationship - such as business partners. 

What happens if the relationship breaks down?

If you’ve taken out a joint life insurance policy with someone, say a partner, and the relationship has ended, you might need to close the policy. It’s unlikely that you can split this into two single policies when this happens. At this point you might need to compare prices to find an affordable deal, and a policy that meets your needs, if you still want and need life insurance. 

It’s also worth remembering that prices rise as you get older. So there’s even more need to shop around to find a policy that both suits you and one you can afford. 

How do I reduce my family’s tax bill with a joint life insurance policy?

Another important aspect of joint or single life insurance is tax. If you’re taking out a life insurance policy, you might want to consider writing your life insurance policy in trust.

This simply means you set up an arrangement whereby the policy is looked after by a trust or trustees. These can be your friends, family members, or a solicitor. They then take charge of the policy and it’s up to them to organise for money to be paid out when you die. 

A huge benefit of putting a life insurance policy in trust is that any money paid out from your insurer is unlikely to be taxed. If a policy isn’t in trust, money paid out from life insurance becomes part of a person’s estate when they die. This whole amount is then taken into account in terms of inheritance tax, and anything over the allowance (currently £325,000) is taxed at 40%.

Using a trust, which is also free apart from any legal costs you might have to pay, is a handy way of avoiding leaving relatives with a hefty tax bill.  

It could also speed up the time it takes for money to be paid out. With a joint life insurance policy, if it’s been written in trust the payout goes straight to the surviving partner upon death. This is usually quicker than the standard process of paying out a life insurance policy.

It’s well worth talking to your insurer about putting a policy in trust, but before you do so make sure you understand exactly how it works.

What key points should I be aware of on joint life insurance policies?

It can sometimes be confusing deciding which life insurance policy to buy so here we’ve listed some of the key points to help you decide:

• Joint life insurance policies pay one sum of money no matter which partner dies and are usually cheaper than two single life insurance policies.
• More money is paid out if you have two single life insurance policies, although premiums could be higher.
• If a relationship ends you need to take out a new life insurance policy if you want to sever ties financially.
• As you get older, taking out a new life insurance policy could be more expensive.
• If one partner has pre-existing health conditions this might push up the price of a joint life insurance policy.