The recent Old Mutual Savings & Investment Monitor survey 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, a joint life policy could be an option, says 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,” she said.
A single life insurance policy covers one person only and 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 an individual payout when either policyholder dies.
Nagtegaal says that the best way to decide if a joint 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 be financially secure, even though an income will be lost. As one policy is usually cheaper than two separate ones, couples who are struggling financially may find a joint life insurance policy more viable.”
Having joint 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 than if just one spouse was covered; and stay-at-home mums and dads can be covered too, which means that extra burdens like childcare costs are covered should they pass away.
However, if you are considering a joint life policy, make sure you understand when the policies pay out. A first death policy would need to be paid once either of the policyholders die. 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 policyholders have passed away. Because it only pays out on a second death, lowering the probability of a payout in the early years, this policy may be cheaper. However, it leaves the surviving spouse and family with no payout for debts or the cost of raising children. This often comes as a surprise to people who think they have taken out a first death payout 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 payout becomes part of the estate. Policyholders have the option to have their policy written “in trust”, which ensures that money is put into a trust fund that is tax-free.
WHAT TO CONSIDER
In the case of a first death policy, the remaining partner would no longer be covered by the policy. As life insurance premiums increase with age, the surviving partner may find that life cover has become unaffordable or may have developed a health condition, making it difficult to get cover.
Nagtegaal says that the policy cannot be divided up in the case of divorce or separation.
“If one partner decides to not pay their half, the policy will cease to exist unless the other partner decides to take it over and asks for 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,” says Nagtegaal.
“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 yourself and your partner.”