What Is Joint Life Insurance?

If you and your partner are considering buying life insurance, you’ll have the option of taking out a policy together – this is known as joint life insurance.

In this guide we explain exactly how joint life cover works to help you assess whether it could be right for you.   

What is joint life insurance?

Joint life insurance is a type of life insurance policy that covers two people, but usually only pays out once.

Joint life insurance can be worth considering if you are married or if you live with your partner, especially if you have children. In some cases, it can also be useful for business partners.

The pay-out from a joint life insurance policy is usually in the form of a tax-free lump sum which your beneficiaries – those you choose to receive the money – can use to cover debts such as a mortgage, credit card or personal loan, as well as pay for household bills and everyday living costs.

How does joint life insurance work?

This will depend on whether you have a first-death policy or a second-death policy.

First-death policies pay out when the first person dies, and after that point the cover provided by the policy will end.

Second-death policies pay out once both policyholders have passed away – in other words, after the second death.

Whether you have a first-death policy or a second-death policy, there will only be one pay-out.

First-death policies are the most common, while second-death policies may be an option if you’re taking out whole-of-life cover.

How is joint life insurance different to single life insurance?

While joint life insurance provides cover for two people, single life insurance only covers one individual. Couples can therefore choose to take out two single life insurance policies rather than one joint policy if they prefer.

The main advantage to buying two single policies is that, if both partners were to die within the term of their policies, their beneficiaries would receive two pay outs – one after each death. But because single life insurance effectively offers double the cover, it can be more expensive than joint cover, which only pays out once in most instances.

What are the pros and cons of joint life insurance?

Pros

• joint cover can be more affordable than single life insurance
• with first-death policies, the pay-out goes straight to the surviving partner, which can make the payment process quicker
• you don’t need to be married to take out joint cover.

Cons

• your beneficiaries will only receive one pay-out
• if a couple with joint cover split up, the policy can’t usually be divided.

What types of joint life insurance can you buy?

When comparing joint life insurance policies, you’ll be able to choose from the following types of cover:

• Level term: where the amount of cover and your premiums remain the same for the term of the policy
• Decreasing term: wherethe amount of cover reduces over time, often in line with an outstanding debt such as a repayment mortgage– this is often the cheapest option
• Increasing term: wherethe amount of cover increases over time to protect your policy’s value against inflation. Your premiums will also gradually rise
• Whole-of-life: designed to pay out whenever you die, rather than within a specified term. This sort of policy is generally used for estate planning rather than protecting the family’s immediate financial well-being.

What happens to a joint life insurance policy if you separate?

If you have a joint life insurance policy and separate from your partner, you will usually have the option to cancel the policy or one partner may be able to take over the policy so that it only covers them.

Should you choose to cancel the policy there will be no premium refunds and no pay-out. Instead, if you want cover to continue, you’ll need to take out a new, single life insurance policy. However, because you will be older, the cost of that new policy is likely to be higher, since age is one of the key factors determining the size of premiums.

And if your health has deteriorated since you took out the original joint policy, that will also push up your costs.

Some insurers will allow one partner to take over the joint policy, but keep in mind that that partner will need to cover the cost of the monthly premiums on their own. The remaining partner will then need to arrange separate cover.

Is joint life insurance right for me?

To help you decide whether a joint life insurance policy could work for you and your partner, or whether you would be better off taking out two single policies, it’s worth considering the following:

• Your budget

Taking out a joint life insurance policy often works out cheaper than buying two single policies. So if cost is a major factor and you’re on a tight budget, a joint life insurance policy may be the better option.

• Level of cover

The amount of cover you need is also an important consideration. Joint cover can be a good option if you both need the same level of cover for the same length of time – for example, if covering your joint mortgage is the main priority.

However, if one partner earns considerably more than the other or you have dependants who will rely on the money that could be paid out, two single policies might be more suitable. That way you can choose different levels of cover and your dependants could receive two pay outs, potentially leaving them financially better off.  

Don’t forget that even if you are a stay-at-home parent, life insurance can still prove valuable – if you were no longer around, your partner might have to give up work to care for the children or pay out for childcare.

• Your relationship

Keep in mind that if your relationship breaks down and you have a joint policy, you may have to take out separate cover at a later date which could be more expensive. You may therefore prefer to take out two single life insurance policies.