Young Professionals – Life Insurance For Cohabiting Couples
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More and more of us are cohabiting with our partners with data from the Office of National Statistics (ONS) showing that the proportion of people who were in relationships and cohabiting rose to just over 24% in 2021.
It is important that people who are cohabiting are aware that they do not have the same rights as those who are in a marriage or civil partnership when it comes to their finances.
It is important to have a conversation with your partner about finances and this is something that we are generally not very good at, especially when it comes to talking about what would happen in the event of death.
According to research conducted by Scottish Widows around 52% of those in unmarried relationships were unaware if their partner had life insurance.
The consequences of this is that, for those who are cohabiting, any insurance payout might not reach their intended beneficiary or be subject to avoidable delays.
Lets look at some of the things that cohabiting couples should consider when putting in place life insurance.
Type of Policy
Once you have established the amount of cover you need and the term required, you need to consider whether you are going to put in place a joint policy or two single policies.
A joint life insurance policy covers both partners but only pays out once, typically on the first death. The main advantage of a joint policy is cost, a joint policy is often cheaper.
A single life insurance policy covers one person and pays out on their death.
Advantages of Individual Policies
There are a number of advantages to having two separate insurance policies and these include:
There are two potential payouts.
The policy doesn’t end on the death of one of the couple.
Two separate policies can be placed with different insurers to obtain the best premiums as well as the best ‘value add’ benefits, for example, a second medical opinion service, GP services or health MOTs. These benefits are often available to the partner of the policyholder so picking selectively could maximise the breadth of benefits available to the couple.
In the event of separation, it can be quite difficult to de-couple a joint policy without the need for additional underwriting. If a couple with individual policies separate, both policies can continue as normal and the beneficiaries of the policy can be amended as and when necessary.
Trust
Whatever type of policy is taken out, it should be written in trust to ensure that benefits are paid outside of the estate for Inheritance Tax purposes.
It also means that the payout does not have to go through probate which generally means the insurer will settle the claim soon after receiving the death certificate.
Wills
It makes sense for cohabiting couples to have a valid Will in place. Without a Will, a cohabitee can claim under the Inheritance (provision for family and dependents) Act 1975 if they have been in a relationship for at least two years prior to the point of their partner’s death and that they were living in the same household as if they were a married couple.
However, these claims can be complicated and expensive to progress and any outcome is difficult to predict and is often lengthy.
Cohabitation Agreement
Couples who have their financial affairs intertwined (for example purchasing a house together) should consider putting in place a Cohabitation Agreement.
This is a document which outlines the rights and obligations of each partner towards each other and can include a declaration of trust which is a legal agreement that determines how assets and investments are divided in the event that the relationship breaks down.
Conclusion
As more and more of us are cohabiting, it makes sense to have conversations with our partners around our finances. It is not a terribly exciting conversation to have but can be extremely important to ensure that you are both protected should your circumstances change.
Contact Us
For a confidential discussion around your finances, please do get in touch.
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