Unfortunately, taking out cover at a later date also has the disadvantage of higher premiums. On age alone, the premium for a 40-year-old taking out a single life policy, again for a non-smoker, over 25 years and with a sum assured of £250,000, would have almost doubled to £19.87 with Royal London.
Even selecting a 15-year plan, to take them to the end of the original policy’s term, would mean premiums of £15.85 a month. Premiums could be higher still if any health problems developed. If these are serious, they might struggle to arrange cover altogether.
Double trouble
Even without death or separation, opting for a joint policy can have disadvantages. The insurer’s assessment of the two individuals’ risks may vary, so although an adviser arranges the most competitively priced joint policy, it may be possible to obtain a better rate by splitting the policy.
In particular, this could happen where there is a significant difference in the individuals’ ages or health. There could also be instances where one person may not wish to disclose all their medical information to their partner. This could lead to non-disclosure, with complications if a claim is submitted.
Further risks come in the shape of the Financial Ombudsman Service (Fos), which might challenge the suitability of a joint life policy.
Mr Purdy explains: “Although the Fos is in favour of a joint life approach due to the lower premium, a policyholder could complain that they did not know they would be left without cover in the event of their spouse dying. I do think it is an area where our industry does not treat customers fairly.”
Although joint life policies have become something of a habit for the protection market, he adds that it could move away from them without too much bother. “It would require a bit of fancy footwork putting single life policies in trust, but this is straightforward,” he explains.
No more joints
Most insurers offer a free trust form, which can be completed to determine who receives the proceeds of a life insurance policy. Although less of an issue for married couples, where assets can be transferred to one another inheritance tax-free, this has the added advantage of ensuring this money does not end up in the deceased’s estate, potentially increasing their inheritance tax liability.
The situation is slightly different for policies that include critical illness insurance. With these, as any payment for a critical illness claim must go to the person with the condition to avoid any tax liability, a split trust is necessary. This ensures the critical illness payment goes to the individual, while any death benefits go into the trust. These are less common, and the additional complexity makes them more difficult to set up, but most insurers can provide the necessary trust documentation and guidance.
