Joint life insurance or two single policies?

Joint life insurance covers two people, usually a couple, on a single policy. MoneyHelper says it is usually more affordable than two separate single policies, but it only pays out on the first death. After that payout the policy ends, and the surviving partner has no cover from it. Two single policies cost more, but they make sure there is a payout on each death.

So the real question is not "joint or single?" but "do we need one payout or two?"

How joint life insurance works

One policy, one premium, two lives covered. If either person dies during the policy, the insurer pays the sum assured once. MoneyHelper says the money goes to the surviving policyholder unless you've made other arrangements, such as a trust.

Most joint policies are first death policies. Others are second death policies, which pay out only when both people have died. HMRC's manual refers to joint policies that become payable on an event after the first death, usually when the last joint policyholder dies. They suit needs that only arise after both partners have gone, such as an Inheritance Tax bill on a whole of life policy.

Joint vs two single policies

Illustration only: a couple with a mortgage and young children buys joint cover of 250,000. One partner dies and the policy pays 250,000, clearing the mortgage. The policy then ends. If the surviving partner later dies while the children are still young, there is no further payout unless they have bought new cover, at an older age and possibly with changed health. With two single policies of 250,000 each, the second death would also pay out.

When each tends to fit

A joint policy is often used where the need is a single shared debt, typically a mortgage, and the main concern is clearing it if either partner dies.

Two single policies are often looked at where:

• there are children who would still need support after a second death
• the partners earn different amounts and want different levels of cover
• one partner wants cover to run longer than the other
• the couple want separate trusts, for example with children from earlier relationships as beneficiaries
• they want each policy to stay with its owner if the relationship ends

A regulated adviser can model the difference in cost against what each set-up would pay out in different situations.

Applying for joint cover

Both people answer health and lifestyle questions. The Consumer Insurance (Disclosure and Representations) Act 2012 requires each applicant to take reasonable care not to make a misrepresentation. The Financial Ombudsman Service notes that it may not be reasonable to expect a customer to know, off the top of their head, the answer to a question about a joint policyholder. But where you're unsure, you're expected to find out. The safest approach is for each person to answer their own questions.

Joint cover, trusts and Inheritance Tax

GOV.UK says there's normally no Inheritance Tax on what you leave to a spouse or civil partner. So for married couples and civil partners, the bill often comes on the second death, which is why second death policies exist.

For first death policies, the payout going to the surviving partner is often exactly what is wanted. Putting a joint policy in trust can still help, for example to name children as beneficiaries if both partners die together. See life insurance in trust.

Couples who aren't married

Each insurer sets its own rules on who can share a joint policy. Even where unmarried couples can, some of the surrounding law treats them differently:

• Scotland. Under section 2 of the Married Women's Policies of Assurance (Scotland) Act 1880, a policy on your own life expressed to be for your spouse or children is treated as a trust for them. The Civil Partnership Act 2004 extended this to civil partners. It doesn't cover cohabiting partners, so they need a different form of trust.
• Bereavement Support Payment. GOV.UK says a partner you lived with as if married can claim, but only if one of you was getting, or entitled to, Child Benefit for a child living with you.

Over-50s plans are single only

MoneyHelper's comparison notes that over-50s plans can only be taken out as single policies, while regular life insurance can be single or joint. See over-50s life insurance.

What to check in your policy

• Lives assured: whether both names are on the policy schedule
• Basis: first death or second death
• Who receives the payout: the survivor, a trust, or the estate
• Trust deed: who the trustees and beneficiaries are, and whether they still reflect your wishes
• Separation clause: what the policy allows if you split up, such as splitting or cancelling
• Sum assured and term, and whether they still match the shared mortgage
• Both sets of application answers: ask the insurer for a copy
• Any option for the survivor to take out new cover after a claim, and its conditions

When to talk to a regulated adviser

Choosing between joint and single cover means weighing cost against what each set-up would pay in different situations. A regulated financial adviser or protection broker can recommend the right structure. If trusts are involved, especially for unmarried couples or blended families in Scotland, a solicitor can set up or check the trust.

This guide is general information about how insurance works in the UK. It isn't advice and doesn't take your circumstances into account. Policies differ: your own policy documents are what count.