Single life insurance offers better value for couples

Many in the UK life insurance industry believe that too many couples are opting for joint life assurance or insurance when they would be better off taking out two single-life policies. Indeed, independent company Lifesearch has gone so far as to suggest that many IFAs could be in breach of TCF (Treating Customers Fairly) guidelines by recommending poor value joint life policies ahead of their generally better value single life policies.

To combat any inappropriate selling, Lifesearch suggests the introduction of a dual-life option, where two single life policies are sold as a single plan, would make things simpler for potential policy-holders. It believes that most couples compare life insurance quotes on joint-life cover unaware that there are alternatives, such as the dual single-life options.

Although two single life plans will typically cost the same, or slightly higher than a joint life plan, the benefits significantly outweigh the extra cost. For example, with a joint-life policy in the case where an insured person dies, the policy ceases leaving the other person uninsured. This may occur later in life where getting reasonably priced insurance for the surviving party may prove very difficult or nigh on impossible, especially if they are in ill-health.

In addition, single life policies can be tailored to each life and the circumstances of the insured, whereas joint life plans have to be the same for both insured parties, and any payout made if both parties had single life cover would be double that in a joint-life claim. But, the major benefit is that they are easier to place in trust. Inland Revenue rules call a joint-life policy placed in trust a ‘gift with reservation’ as it is classed as a gift that might be taken back if the other insured dies first, but a single life insurance policy is owned entirely by the insured, making it much easier to place in trust.

Lifesearch director Kevin Carr roundly condemns joint-life policies: “It is such bad policy and often oversold,” he said, before adding “Customers can be better protected, but there is a lack of knowledge of the alternatives and an inertia that prevents the changing of policies.”

But as for suggested action, Carr believes there are only two options; either the industry makes joint life cover more price competitive or IFAs simply boycott the plans altogether and only recommend single life cover in all cases. Drastic action indeed, but Carr is adamant that it is required.