The recent Old Mutual Savings and Investment Monitor found that middle-class households are cutting back on insurance and medical cover. However, if you have a family, life cover is essential to provide for them if something happens to you. If you can only afford to have cover for one spouse or partner, rather than leaving one partner uninsured, taking out joint life cover could be a good option, according to Vera Nagtegaal, executive head of financial comparison website hippo.co.za.
Nagtegaal explains that joint life insurance allows you and your partner to be covered by a single policy, with the same terms and conditions.
“It will be paid out when one partner passes away. The surviving partner will then, however, not be insured.” Conversely, a single life insurance policy covers one person only. It pays out a lump sum if that person dies during the period set out in the policy. Both partners can have their own single life insurance policy. Since each is separate, it amounts to individual pay-outs when each policy-holder passes.
Nagtegaal says that the best way to decide if a joint life cover policy is right for you is to look at whether it would meet your requirements.
“It is most suited to nuclear families, where both partners contribute an income to the household. If a partner passes away, their spouse and children will then be financially secured, even though an income will be lost. As the policy is usually cheaper than two separate policies, couples who are struggling financially may also find a joint policy more viable.”
Having joint life cover has several benefits. It is paid out irrespective of which spouse or partner dies. It is usually cheaper than having to pay for two individual life insurance policies. Joint cover leaves the family more secure compared to if just one spouse was covered, and stay-at-home moms and dads can be covered too, which means that extra burdens like childcare costs are covered should they pass away.
Understand the fine print
However, if you are considering joint life cover, make sure you understand when the policies pay out. A “first death” policy would need to be paid when either of the policy-holders dies. This could be useful in the case of settling debt or providing for children’s educational needs.
A “second death” policy only pays out when both policy-holders have passed away. Because it only pays out on a second death, lowering the probability of payout in the early years, this policy may be cheaper. However, it leaves the surviving spouse and family with no payout for debts or to help with the cost of raising children. This often comes as a surprise to people who think they have taken out a first death policy. If you are comparing quotes, make sure you ask about when the policies actually pay.
If both spouses die at the same time, the pay-out becomes part of the estate. Policy-holders have the option to have their policy being written ‘in trust’, which ensures that money is put into a trust fund which is tax free.
In the case of a first death policy, the remaining partner would not be covered by the policy any longer. As life insurance premiums increase with age, the surviving partner may find that life cover has become unaffordable or they may have developed a health condition making it more difficult to get cover.
Nagtegaal says that the policy cannot be divided up, in the case of divorce or separation. If one partner decides not to pay their half, the policy will cease to exist unless the other partner decides to take it over and requests a change in beneficiary and updates the terms of their will. This decision can be made based on the primary caregiver or financial provider of shared minor children.
“Everybody’s situation is different, which is why it’s always best to compare life insurance quotes from a range of providers before you make your final decision. Costs and benefits can vary greatly so it is important to do enough research before you choose a policy for you and your partner,” says Nagtegaal.
This article first appeared in City Press.