We understand that, when it comes to taking out a mortgage, there is so much to consider that the decision can feel overwhelming. If you are in this position, then it is worth checking out the different types of insurance that are available to you – particularly, a life insurance policy.
In the UK, research has shown that, as of 2022, approximately 35% of Brits do not hold a life insurance policy. The same study found that a common reason for this is that the available policies are considered to be too expensive, despite other findings showing that 6 in 10 households thought it would benefit their family in the long run.
There are many advantages to taking out a life insurance policy, with protecting your mortgage just tipping the iceberg.
Whilst deciding which coverage you need may be simple enough if you take out a mortgage on your own, if you are taking out a joint mortgage with your partner or family member, then a joint life insurance policy might be a better fit for you.
Single policy vs joint policy: How to make a decision
There are a variety of factors that could affect whether a single policy or a joint policy is best for your situation. The cost of these policies is also dependent on aspects such as your:
- Cover amount
Some insurance providers may also have strict criteria when it comes to eligibility, so it is essential that you carefully read through their terms and conditions.
With two single policies, you and the other person are covered individually. This means the amount of cover is paid out when each person dies if the policies are still active. As such, any beneficiaries could potentially receive two payouts should you die within your policy terms.
In the long run, two individual policies may possibly be the more expensive route. However, two single policies also mean that you are able to choose two different levels of cover, which could be useful if you or the other person is the main earner.
The death of the main earner is more likely to impact the financial situation of your surviving family members, so a higher amount of cover for this individual could be considered.
Single policies cover one person, whereas a joint policy can cover the mortgage for both people – in other words, only one payment will be received by the beneficiaries. This is the case for both types of joint policies – which are:
- First death joint policy – Pays out in the event of the death of one of the policyholders
- Second death joint policy – Pays out in the event of the death of both policyholders
In a first death joint policy, if one policyholder passes away, the surviving person will no longer have life insurance, meaning that they will have to take out another policy at a possibly higher premium to reap the benefits of a life insurance policy.
Second death policies are often used for tax and estate planning purposes, or to support any surviving children. For this reason, it is also sometimes referred to as ‘dual-life insurance’ or ‘survivorship insurance’.
If you and your partner (or joint owner of the home) decide to separate or your relationship breaks down, it may be possible to split your joint policy into two single ones. However, this could lead to higher premiums for both and is entirely dependent on your insurance provider.
Alternatively, you may also have the option of converting the joint policy into a single policy for one of you to cover the mortgage on the house. This means that the other person may then need to take out a new single policy under their name for themselves.