Joint life or two single plans? That is the question!
When deciding whether to offer a joint life plan or two single life plans to a couple, it is important to consider the dynamics of each family, writes Vitality tax and trust expert Kim Jarvis
“When discussing the right level of protection with clients and how to set it up, should a joint life or single life plans be used?” This is a question I have been asked many times by financial advisers during my career.
There is no one, single right or wrong answer to this question. In 2021, there were over 3.4 million couples cohabiting in England or Wales 1. Meanwhile, blended families represented 63% of adviser business 2, according to research carried out by the Society of Trust and Estate Practitioners (STEP) into modern families last year.
“With the cost of living continuing to increase, it is paramount to get the right plan in place from the start."
Kim Jarvis, Tax and Trusts Technical Consultant, Vitality
In order to find the best solution for each client, it is therefore important to consider the dynamics of each family, the life stage of each client and their goals.
Morgan and Evan
Morgan and Evan have cohabited for 10 years and have recently informed their adviser that they are starting a family. After congratulating her clients, the adviser now must consider her clients next life stage. She explains that the total cost of raising a child to 18 is roughly £160,000 3 and they need to ensure that if either of them die there will be a lump sum available to give peace of mind.
The first priority is to update their wills. They will need to think about guardianship of their unborn child. When they got together, their adviser explained that cohabiting couples don’t have the same rights as married couples, so they made sure that they executed wills; when starting a family these need to be updated.
They then discuss protection and whether Morgan and Evan should take out two single plans or one joint life plan. This is where no one solution fits all.
The right balance
For example, Morgan earns a good salary as a solicitor and, as a couple, they realise that if Morgan died first, Evan’s income would be substantially reduced. In this situation, two single plans might be the best solution. Whilst having two single life plans is normally more expensive than a joint life plan, it allows more flexibility. Unlike a joint life plan, on the first death, cover can continue for the survivor. As the cover remains, the survivor has piece of mind and doesn’t need to think about obtaining further cover. The adviser highlights that obtaining cover in later life would be more expensive and, in some cases, they may not be able to get cover at all if, for example, they had suffered an illness which made them uninsurable.
The adviser explains that both plans must be written in trust to ensure that a) the correct person benefits and b) the death benefit can be paid quickly.
To be able to pay the death benefit quickly additional trustees should be appointed. The adviser suggests a discretionary trust so that the trustees can pay to anyone named within the potential beneficiaries (includes each other, children, etc) and whilst they want to appoint each other as trustees, the adviser suggests appointing a professional trustee or a sibling. While it might be a difficult conversation with clients, having single life plans is simpler in the case of separation - but if the ex-partner was a trustee, then problems could occur.
Budget option
Alternatively, if Morgan and Evan were on a budget, joint life plans are usually cheaper as the death benefit is only paid out once. Again, it can be written into a trust whereby the surviving owner will benefit (if they survive the first to death by 30 days). However, if both die within 30 days of each other, the trustees will use the death benefit for the beneficiaries.
Vitality’s joint life plans have a unique offering in that the life cover provided for each life insured can be different. For example, as Morgan is the main earner her life cover could be set at £200,000, with Evan’s being £160,000. This means that if Morgan dies first Vitality would pay £200,000 to Evan or if Evan died first a payment of £160,000 would be available to Morgan. The plan would then cease.
Life assurance represents an effective and economic way of ensuring that funds are available to an individual’s family/dependents following their death. However, putting cover in place is only half of the story. It is also necessary to ensure that the funds are available in the right hands, at the right time, and in a way that is tax efficient.
In the current environment, affordability may be an issue and whilst it is part of the process it should not be the sole steer. If the best solution, for our couple, is two single plans but the current premium is not affordable, maybe opt for a plan where the sum assured can increase at a later date when there is more disposable income.
Find out more about our Life options and why putting a plan into trust is good for you and your client.
1 Inquiry launched into the rights of cohabiting partners, the fastest growing family type in England and Wales - Committees - UK Parliament
2 Meeting the needs of modern families, STEP report, 18 November 2021
3 https://cpag.org.uk/policy-and-campaigns/report/cost-child-2021
Related: client gifting
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