Single versus Joint Life Insurance
Life insurance can be purchased to cover you, or you and your partner in the event of either of your deaths. Commonly, joint insurance is available as a joint life 'first death' insurance plan: this means that the policy pays out for the first death in the partnership, but thereafter the plan ceases and the surviving partner is no longer covered.
Depending on the current insurance policies on offer, it is sometimes more logical to opt for two individual life insurance plans for you and your partner. Some issues that arise with a joint insurance policy are eradicated if you have two individual policies. In the majority of cases, having two single policies will double the pay-out, as both deaths will be covered, rather than just the first. Additionally, reports suggest that there is little extra cost to taking out two separate policies rather than one joint policy.
The 'first death' rule disappears when you and your partner are covered by separate policies, and so your other dependents will benefit when the second death occurs. By taking out two individual policies, the surviving partner will not have to purchase cover for themselves when their partner dies. Since the first partner will usually die when both partners are older, the surviving partner may well have difficulty finding a suitably inexpensive policy because insurance providers increase the premiums you pay according to your age.
In the event that your relationship breaks down, you may experience difficulties in cancelling or dividing the insurance policy; many providers do not offer this possibility at all and the associated cost of doing so must be taken into account, for example higher premiums payable for a new policy. In addition, individual life policies can be customised to suit the lifestyle and circumstances of each person: this cannot be done with a joint life policy since the plan has to cover both individuals in a partnership policy.
Another oft-reported benefit of two separate life policies is their ability to be easily 'written in trust' to avoid inheritance tax: a single life policy written 'in trust' places it outside of the individual's estate following their death, thus it would not be subject to inheritance tax deductions, see Writing a Policy 'In Trust'. A joint policy is much harder to write 'in trust'.
It is always advisable to seek advice from an independent financial advisor before investing in any kind of insurance. Nevertheless, experts in the industry are currently calling for a redesign of joint accounts, due to the comparative value of taking out individual life insurance policies.
