PROTECTION DIFFERENCES FOR MARRIED & COHABITING COUPLES
Chris Dunne , Financial Services Communication Professional
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We look at the rights ( or lack of ) to cohabitees vs married couples when it comes to protection ; looking at how to set up policies for couples and what happens in each scenario upon death .
To death do us part is part of the traditional marriage vows in the uk , however , in the modern day , fewer people use this as part of their vows , and in fact fewer people in a couple are married than ever before .
The office for national statistics ( ons ) says approximately 60 % of the population live as a couple – the majority are married but around one in five are cohabiting .
So when death does part the couple , when it comes to protection , what are the things advisers should look for when in relation to the different rights and best practices of setting up life insurance policies for married and unmarried couples ?
LET ’ S START WITH THE REAL BASICS : A SINGLE LIFE INSURANCE POLICY COVERS ONE PERSON , AND PAYS OUT ON THEIR DEATH .
A JOINT LIFE INSURANCE POLICY COVERS BOTH PARTNERS , BUT ONLY PAYS OUT ONCE , TYPICALLY AFTER THE FIRST DEATH .
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So when it comes to advice , a joint ( often cheaper policy ) looks on the face of it a good recommendation for the client , however , there are many things to consider to counter this . The most obvious one , by having two single life policies , means there ’ s two potential payouts and the policy doesn ’ t end on the death of one of the couple .
There are other advantages of two separate policies : they could be placed with different insurers ; this could be beneficial to the client because of differing approaches to underwriting . The clients could also benefit from the differing added-value services that insurers offer ; often these services like second medical opinion , gp services or health mots are available to the partner of the policyholder too , so picking selectively could maximise the breadth of benefits available to the couple .
Another factor in going for two individual policies vs a joint policy , is in the event of separation – it is very hard to decouple a joint policy , without the need for underwriting . If the separation is particularly acrimonious , then the stress to get both parties to agree to cancel or change the joint policy can be harmful . At extremes , financial abuse can occur when one partner exerts control over the other partner ’ s finances , using the policy as a means of abuse of the ex-partner .
If a couple holding two individual policies go their separate ways they can continue as normal and beneficiaries of the policies updated as and when necessary .
If the clients take a joint policy or two single policies these should be written in trust ; this ensures that the payout is outside of the estate when it comes to inheritance tax purposes . This payout does not have to go through probate , so that the insurer is more likely to settle the claim soon after receiving the death certificate .
32 | PROTECTION ADVISER | AUTUMN 2023 |