Two single life policies or one joint life plan, which is more suitable? It is a question the industry has pondered for many years. Guardian’s entry into the market last year with a “Dual Life” offering and no joint life option has increased these conversations with most compliance departments agreeing that two single life plans are usually the better option. But is this the case in all scenarios and what should advisers be doing when comparing the options?
Lets start by considering the benefits of two single life plans as a posed to a joint life plan across the different scenarios it might be used.
Far more cover for a fraction of the cost
The most obvious advantage is that clients will actually have far more cover. Under a joint life plan the maximum the policy will pay out is the sum assured as the clients are only covered for one event. If they take out two single life policies then they are covered for two events and therefore have twice as much cover.
Whilst the clients have twice as much cover the cost differential is actually relatively small. We ran a number of quotes through SolutionBuilder in order to ascertain the difference in costs between joint and two single life plans for a couple of different scenarios with the below results.
|Client ages/benefit type||Joint Life Premium||Combined Single Life Premium||Cost difference||%age cost difference|
|Thirty Years Old (Life Only)||£14.46||£17.80||£3.34||23.1%|
|Thirty Years Old (Life with accelerated CI)||£70.88||£79.76||£8.88||12.5%|
|Thirty Years Old (Life AND CI)||£84.00||£94.14||£10.14||12.1%|
|Forty Years Old (Life Only)||£28.70||£31.72||£3.02||10.5%|
|Forty Years Old (Life with accelerated CI)||£163.10||£178.62||£15.52||9.5%|
|Forty Years Old (Life AND CI)||£191.54||£211.72||£20.18||10.5%|
*Based on a sum assured of £200,000 over 25 years using the cheapest provider.
The non-claimant will not lose their cover
Perhaps more important than providing more cover overall it actually ensures that if a claim is made, the non-claimant can retain their cover with no fuss. Under a joint life plan the non-claimant would need to either utilise a life/Critical illness buy back feature (if their provider offers this) or completely re-apply for cover.
If the client has a plan that includes Life or Critical Illness buy back then cover can be re-instated on a single life basis with no underwriting (although there will be forms to complete). If such a feature is not available then the client would need to go through underwriting to re-instate cover. This could be problematic in several ways as the client will be older and therefore would be paying higher premiums and there is a risk their health may have deteriorated leading to the risk of being rated or even declined for cover.
Another big benefit is the flexibility it provides to clients, especially those that are not married. All joint life plans will include separation options that enable clients to separate the plan into a single life plan if a certain scenario takes place. This will generally be limited to;
· Divorce/dissolution of a civil partnership,
· Transferring a mortgage to another name; or
· Moving to another house
As such these options can only be used where the clients are married or in a civil partnership or if they have a mortgage. If for example two clients were not married and did not have a mortgage (or even paid the mortgage off early) and separated this option would be far more difficult to take out.
Regardless of whether a couple are separating or being removed from a mortgage, having two single life plans provides the flexibility to accommodate future events without the need for further paperwork and in the worst scenarios further underwriting.
Is there any need for joint life cover?
Whilst in pretty much all cases two single life policies are far more beneficial than a joint life plan, there is still a need for joint life plans. For a start they are cheaper and therefore if an adviser has a client that is really working to a budget and every single penny counts, a joint life plan may be a consideration. In terms of justification for this however, perhaps advisers should be taking the stance of needing specific confirmation from the client that they understand the benefits they are losing by taking a joint life plan and would like to proceed in any circumstance.
Where cover is being put in place for high net worth clients to protect against an inheritance tax liability, a joint life second death policy on a whole of life basis will be the best option.
What must advisers consider?
It is clear that for the vast majority of cases two single life plans provides more cover with more flexibility to clients. It is, however, more expensive and therefore as advisers you need to be careful to provide the justification as to why you have selected this option. If this is not done an adviser could be accused of over insuring their clients especially if the cover is put in place to protect against a liability.
If for instance cover was put in place to protect a mortgage, it could be argued that only one event needs to happen for the mortgage to be repaid and therefore a joint life plan is sufficient. Advisers recommending two single life plans for this purpose should be careful to make the client aware that they have more cover than they require to suitably protect their mortgage and fully document the rationale and benefits of this approach.
Guardians approach of not offering a joint life or accelerated critical illness policy is to be applauded and it seems like other insurers have taken note. Recently Royal London added a dual life option to The Exchange when users request joint life quotes.