When you’re a parent, life insurance is one of those “must-haves” that you need to arrange at some point.
That’s because with life insurance, you get peace of mind that should the worst happen, your kids’ financial future will be made more secure by the payout of a lump sum. Of course, this is not an eventuality that any of us want to consider, but should the worst happen, life insurance is there to ease the financial worries that inevitably follow the death of a parent.
But what’s the best type of cover for your family?
1. First up, you need to decide whether a fixed-term or whole of life cover is best for you.
2. Then, once you’ve chosen between these two options, your next choice is to pick between single or joint cover (unless you’re a one-parent family in which case a single policy would be best).
But which of these makes the most financial sense?
Let’s find out…
Is joint cover cheaper?
When covering a couple, joint cover is cheaper than two single life policies – that’s because there’s a discount for buying a policy that covers two people.
Here are some figures from three major insurers to show this cost differentiator in practice…
These quotes are for a mum and dad, both age 28, both non-smokers looking for guaranteed premiums for a fixed-term policy for a 25-year period with cover of £200,000.
|Single policy||£9.95 pm||£9.40 pm||£10.56 pm|
|Cost of two single policies||£19.90 pm||£18.80 pm||£21.12 pm|
|Joint policy||£16.68 pm||£16.00 pm||£17.43 pm|
|Saving between joint policy and two single policies||£3.22 pm||£2.80 pm||£3.69 pm|
N.B. The figures above are based on standard rates quoted on 24th August 2014. A full application would need to be made to get accurate prices.
So does this mean a cheaper joint policy is best for parents?
You see, the crucial difference between a single and a joint policy is that the joint policy can only pay out once.
This means that if one of the parents were to die within the policy term, whilst the insurer would pay out the £200,000 cover (assuming none of the T&Cs had been compromised), the surviving parent would NO LONGER have life cover.
In short, if the surviving parent were to subsequently die as well within the original 25-year term, their life would NOT be covered and no pay out would be received.
Single cover provides double the insurance
In comparison, single cover means that the lives of both parents are covered, independently.
As a result, if both parents were to die within the 25-year term, both policies would pay out (again, assuming none of the T&Cs had been broken).
As you’d expect, there is a significant financial difference here…
In the event of both parents dying within the 25-year term, the joint cover would only pay out £200,000, whereas two single policies would pay out double the amount – that’s a total of £400,000 (2 x £200,000 = £400,000).
In summary, two single premiums provide twice as much cover for very little additional cost.
“When choosing between joint and single life insurance two single policies are usually more cost effective because both partners are covered individually for only a few pounds more…”
Sion John, Harris John Financial Ltd
Here are some figures to show you this in practice:
|Extra cost of two single policies per month||£3.22||£2.80||£3.69|
|Extra cost of two single policies per year||£38.64(£3.22 x 12)||£33.60(£2.80 x 12)||£44.28(3.69 x 12)|
|Extra cost of two single policies over the 25-year term||£966(£38.64 x 25)||£840(£33.60 x 25)||£1107(£44.28 x 25)|
Fewer complications in the event of divorce or separation
But value for money isn’t the only reason to choose single cover over joint.
Single policies are also easier to manage in the event of a separation or a divorce. And whilst no one plans to split up when they make a long-term relationship commitment, it’s worth being aware of the implications should you fall out of love.
In terms of a joint life insurance policy, you do have a couple of options. For example, you can:
- Keep the joint policy and come to a mutually agreeable method for making the monthly premium payments
- Cancel the policy and replace with single policies
But clearly, there are difficulties with each of these options.
In addition, if you take out a new policy, your most current personal details will be required and you could find that you end up paying more (because as a general rule, premiums increase with age).
In comparison, if you take out single policies in the first place, you can avoid all this future hassle, should your relationship break down.
What’s right for you?
In conclusion, when choosing the right life insurance policy for your family, price should not be the only factor. In addition to securing a good value quote, you also want to think about the wider implications. And whilst a single policy may cost that little bit more, you could find that it pays off in the longer-term.
Disclaimer: You should always speak to your financial advisor before committing to life insurance to ensure that any policies you take out are right for your individual circumstances and are the most suitable for you and your family.