What Is Joint Life Insurance?
Joint Life Insurance is a Life Insurance policy for couples. It is designed to pay out a predetermined tax-free lump sum, to the surviving partner, in the event one of the policyholders dies.
The key difference with a Joint Life Insurance policy from an Individual Life Insurance policy, is that a joint policy will only pay out once, usually for the first death. Both individuals in the couple are covered by the policy, but it only pays out one time.
There are many different types of Life Insurance available for couples as joint policies.
What Types of Joint Life Insurance Are There?
There are a variety of options available when it comes to the type of Life Insurance policy you choose. These can affect the cost of the premiums as well as what the policy covers you for. The first thing to decide is if, as a couple, you would like to be covered for the whole of your life, or just for a specific term.
Joint Term Life Insurance - is taken out for an agreed term, for example 10, 20 or 30 years, to cover the specific period of time in which it is needed. Whilst raising your children perhaps or paying off your mortgage. It is the most affordable way to buy joint life insurance, but only pays out if one of you dies during the term of the policy.
Joint Whole of Life Insurance - is quite different in that it covers your whole life and does not expire until one of you dies, assuming you continue to pay the premiums. It is designed to protect funeral costs, inheritance tax liabilities or simply to leave some money to loved ones when you pass. It is concerned more with covering the liabilities that are sure to arise on death, regardless when that might be.
Level or Decreasing Term?
If you decide to choose a Joint Term Life Insurance Policy, you can choose between a level term and a decreasing term for a joint policy.
Joint Level Term Life Insurance
Remembering that Term Life Insurance policies last for a set number of years – Level Cover requires the same premium and provides the same lump sum to leave behind, if one of you dies at any time throughout the term.
So if you chose a level of cover of £150,000 for example, and a term of 20 years, if one of you dies at any point during that 20 year period, the other would receive the £150,000 lump sum.
Level cover is ideal for:
- Covering your salary
- Paying off an interest-only mortgage
- Protecting your family to allow them to maintain their standard of living
- To pay school or university fees
Joint Decreasing Life Insurance
A decreasing term policy works well to protect a repayment mortgage. As the value of the mortgage debt decreases, so do the premiums and the level of cover. If allowing your loved ones to continue to live in the house and not have to worry about paying off the mortgage are your main concern, this is worth considering as the monthly premiums are subsequently less than a level policy.
Joint Life Insurance and inflation
It is possible with some policies to protect the policy against the effects of inflation, to ensure your payout sum won’t be worth less in real terms in the future, due to the rise in the cost of living. Your monthly payments would also rise along the same lines.
Do We Need Critical Illness Cover?
Joint Life insurance policies are there to cover your financial obligations, but only on the occasion one of you dies. Some will pay out early if you are diagnosed with a terminal illness where you are only expected to live less than a year. But there are other circumstances that would not trigger the life insurance policy pay-out, but would render you unable to work and thus maintain the same financial commitments. Such conditions as cancer, stroke, heart attack or a life changing disability could all be accounted for with critical illness cover.
The chances of a critical illness are higher than that of death, so critical illness is a separate policy and it will add to your premium. But there could be even more costs to pay for surrounding a critical illness than with death; as you will still need to maintain your own lifestyle as well as your loved ones, and perhaps make alterations to the home. As with an individual policy, it is possible to add Critical Illness Cover to a Joint Life Insurance policy to protect against this also.
Do We Need Income Protection?
Income protection cannot be packaged together with Joint Life Insurance in the same way Critical Illness cover can, but none-the-less it is relevant as another form of cover for illness and injury.
Income protection is designed to cover any medical reason why you cannot do your job, and provides a percentage of your wages (before tax) while you are unable to earn. This is paid in the form of a monthly income, compared to a lump sum with Critical Illness.
How Much Does Joint Life Insurance Cost?
As with Individual Life Insurance policies, the premiums will vary depending on your circumstances as well as the level of cover you want to opt for. Joint policies are generally cheaper than two individual policies though, as they only pay out on the death of one of the policyholders.
Personal factors which affect the cost of premiums are:
- Age
- Current health
- High risk professions and activities
- If you smoke
Type of cover factors which affect the cost of premiums:
- Length of cover
- The amount of cover ie the value of the cash pay-out your beneficiaries will receive
- Whether you choose a level or decreasing policy
What Is a Family Income Benefit?
A Family Income Benefit is an alternative option whereby the pay-out the beneficiary receives on your death is in the form of a regular payment for the remainder of the policy term. It therefore acts like an income, to replace the income of the lost partner. This benefit payment can be used to cover bills, rent and any everyday expenses. The value of the payout can be set to match the needs of your beneficiaries.
